This report is being presented to review the accounting procedure of ActiveX Limited Company. It represents the followed procedure to prepare the cash flow (CF) statement for the company. This report also investigates the income statement (IS) of the company to understand the included points in its other comprehensive income. While representing the accounting procedure of the selected company, this report provides insightful description of each included item in the CF statement of the company. It provides a clear description of the company’s income tax expense as well as explains that why the income tax shown in the income tax statements of the company in the last three years. This report provides a clear understanding of the deferred tax assets and liabilities.
ActiveX Limited is a mineral exploration company listed on Australian Security Exchange (ASX) as AIV. The key functions of the organization include exploration of quality mineral resources and their acquisition, identification and delineation. The key minerals for exploration by company include gold, silver, potash and their byproducts. It is focused on the projects related to exploration of gold. The company is implementing various new and advanced leaching methods for extraction of mineral resources like potash and its byproducts. The company is located in Brisbane, Australia (ActivEx Limited, 2018).
The company has established the higher standards of asset portfolio including 33 granted permits of exploration of minerals, 1 granted mining lease, and license application of prospecting. The company has adopted corporate governance for comprehensive systems of control. The company also works in consultancy with traditions, culture, value and beliefs of the community. The ActiveX limited is focused towards providing fair and equitable treatment to communities (ActivEx Limited, 2018).
After the brief explanation about the company, this report represents the analysis reports based on its CF statement, IS and tax expense based on the figures of last three years.
CF from operating activities
The CF from operating activities for the year 2015 include the activities like receipts from sale of product, receipts from debtors, payments for exploration, development, production and administration, received amount of dividends, interest received, interest paid, income tax and other associated costs.
The CF from operating activities for the FY 2016 includes the activities like payments to suppliers and employees and interest received. The CF from operating activities for FY 2017 includes payment to suppliers, salary of employees, interest received and proceeds from insurance recoveries.
There net operating CF from operating activities for the year 2015 is $415,000, for the year 2016 is $462,100 and FY 2017 is $669,403. The number of items in the CF statement has been changed from 2015 to 2017 as income tax and costs are included in other proceeds (ActivEx Limited, 2015).
CF from investing activities
The CF from investing activities include the items like purchase of prospects, equity assets, fixed assets, sale of fixed assets, equity, loans given, loan received, exploration expenditure and others. The net CF (used in) from investing activities for FY 2015 is $ 579,076, FY 2016 is $ 495,797 and FY 2017 is 1.183,743. (Activex Limited, 2017)
CF from financing activities
The CF from financing activities include the items like proceeds from share and options issuance, proceeds from forfeited shares sale, proceeds from borrowings, paid dividends and others. The CF from financing activities for FY 2015 is $ 745,781, FY 2016 $ 51,076 and FY 2017 $1,286,961.
Conclusion for CF statement analysis:
The company is more focused to meet the expenses of the company. The cash outflow of the company is high as compare to its revenue sources. Hence, the company is more strategic about financing activities. The amount of cash inflows is higher for financing activities as compared to investing and operating activities. There has been an increase in cash inflow from financing and investing activities in year 2017 from FY 2015. The increase in cash inflows depicts the increased profitability of the organization.
The other income in CF statement includes the recoveries from insurance. The fixed assets are calculated at cost value. Depreciation is calculated on their cost. The company has received decrease in operating expenses. The exploration and evaluation asset includes the expenses made for the exploration and evaluation activities related to extraction of mineral resources. The recoverability of the expense of exploration asset is dependent of the factor related to success of exploration projects and sale of areas. Operating activities also include the depreciation calculation and loss on impairment of fixed and exploration assets. The CF statements are used to inform the investors about how the company has been financed and is using its investment decisions (ActivEx Limited, 2016).
An IS provides the description of the income and expense source of the business. On the other hand, a business also includes some items that come in other comprehensive IS. In this case, the company doesn’t include any other comprehensive income item in its financial statements in last 3 years because the company has limited income source and the company is more focused towards the main income sources. Basically, other comprehensive income consists of those items that have effects on balance sheet, but it doesn’t report on the IS of the company. These included items do not affect the IS of the business, they will also not cause any change in the retained earnings of the business. The best examples of other comprehensive IS are unrealized profit or loss on hedge financial instruments and some employees’ benefit plans. On the other hand, foreign currency translation related adjustments are also included in these other comprehensive income (Accounting Coach, 2018).
After the understanding of the nature of other comprehensive IS, it becomes easy to analyze that why the company is lacking to generate for the same. The company is not able to generate as much revenue so that the company can cover its operational costs. The company is only focusing on the common sources of its income and expenses. Hence, the company doesn’t show any item that comes under the comprehensive income source.
A corporate income tax is also called a corporation tax as well as company tax. It is a direct tax that imposed by the jurisdiction on the capital or income of the business (Australian Government , 2018). To understand the accounting procedure of corporate income tax, it is required to review the tax structure and financial statements of the company that whether the company comes in tax slab of the nation. In this case, some important aspects related to its tax procedure are as follows:
Tax expense for ActiveX limited in its financial statements: Basically, the tax expense is calculated by multiplying the tax rate with generated income by a business (Accounting tools, 2017). In case of ActiveX Limited, the company has been facing losses in its financial activities. The revenue of the company is too less as compare to its various expenses. Like, the company faced a loss of $1,157,203 in 2017, $ 943,049 in 2016, and $ 520,541 in December 2015. Hence, the company is not in the condition to bear a burden of tax expense in its financial statements. Due to the absence of taxable income, this study is limited to depict about the taxable amount in last 3 financial years of the company.
Deferred tax liabilities: A deferred tax liability is also a tax expense which is being assessed but has not been paid or due for current accounting period. It records the facts that company will, or pays in the future in form of additional income tax because of the transactions that took place in the current accounting period, for example installment sale receivable. However, the company is facing loss in its financial records since a long time period, it has not been in condition to show deferred tax liabilities in its financial statements.
The current tax liabilities are measured at the expected amount that need to be paid to relevant taxation authority. Here, deferred income tax expenses reflect movements in the deferred tax liability balances during the accounting year as well as unused tax losses. The deferred income tax expense is charged outside the profit or loss when tax amount relates to the items that are being recognized outside the profit or loss. Here, as per the loss conditions of the business in last few years, the company has not recorded any income tax payable or current tax assets. It showed net unbooked deferred tax asset for $3,368,000 in 2017 and $ 3,327,000 in 2016 (Activex Limited, 2017).
Depending on the standard business accounting rules, income tax expense is what the firm has computed and owes to pay as tax. On other hand, income tax payable is the amount that the firm owes in tax depending on the tax code rule. Income tax payable is that amount that is visible under the liability section in the firm’s balance sheet till the time firm pays the tax amount (Accounting tools, 2017). In this case, the company faced loss in its financial practices due to the heavy burden of business expenses and low generated revenue. Hence, the income tax expense and income tax payable, both are not included in its financial reports.
Income tax expense shown in the IS
The income tax expenses of the company comprise its deferred tax expense and current income tax expense. The current income tax expenses of the firm are charged to the profit and loss as the tax payable on company’s taxable income. The company does not show any income tax expense in IS in last 3 years. However, there is not any figure such as income tax paid has been mentioned in the CF statement of the company.
Learning and new insight from financial statements
To get a fine measure of taxable income or tax liabilities of the company from its financial statements, some additional disclosure will be likely necessary. Although, ActiveX limited is not in the condition to pay income tax due to its excess expenses over its revenue sources, there must be some additional disclosure required to understand the reasons of losses and not generating taxable income. Due to the lack of taxable income, this study doesn’t provide a deep analytical view about the tax procedure in firm’s financial statements that create confusing fact about the treatment of tax.
Conclusion
CF analysis has been used in this report as CF analysis helps in measuring how much cash is generated and spent by the business during the given time period. Cash is something which is tangible quantifiable and it can be easily measured in the standard units which are acceptable to anyone. While comparing the two companies, no matter how different is CF is a kind of vehicle for the preparation of the true asset to asset comparison. There are many types of unscrupulous techniques which can be utilized for inflating the profits, to artificially enhance the value of the assets or to otherwise make the business picture look more successful than it really occurs. It is quite difficult in fact to do the same with the cash figures.
The analysis reveals that the company is trying hard to meet out the daily expenses of the company. The outflow level of the cash seems to be a bit high in comparison to the revenue sources. The comparison in between the operating activities, financing activities and investing activities reveals that the CFs in case of financing activities are high in comparison to the investing and operating activities. The comparative analysis shows that the amount of cash inflow in financing and investing activities has been high in 2017 from the year 2015. The increment in the flow of cash reveals that the level of productivity has enhanced in the company. Operating expenses of the company have decreased in this time period because of high production costing
The information in this presented report states about the accounting procedure of the company that what is being included in its CF statements and what is not being included in its IS, and how the company is being managing its tax accounting procedure. This report depicts about the policies that has been followed by preparing the annual reports of the company in last 3 years. Hence, it can be concluded that this report represent an analytical view for the company’s accounting and tax procedure but as per the lack of financial performance, this study seems limited to describe the treatment of tax as well as other comprehensive income items.
In last, it can be stated that this report helps to review the financial statements of the company and provide an understanding about aspects of business in CF statement, IS and tax treatment.
References
Accounting Coach, 2018. What is other comprehensive income? [Online] Available at: https://www.accountingcoach.com/blog/what-is-other-comprehensive-income [Accessed 21 May 2018].
Accounting tools, 2017. Income tax expenses. [Online] Available at: https://www.accountingtools.com/articles/2017/5/12/income-tax-expense [Accessed 21 May 2018].
ActivEx Limited, 2015. Mining explorationentity quarterly report. [Online] Available at: https://activex.com.au/wp-content/uploads/2018/03/Quarterly-Cashflow-Report-September-2014.pdf [Accessed 21 May 2018].
ActivEx Limited, 2016. Financial Report. Activex Limited.
Activex Limited, 2017. 2017 Annual Report. Activex limited.
Activex Limited, 2017. Annual Report 2017. Activex Ltd.
ActivEx Limited, 2018. About us. [Online] Available at: https://activex.com.au/ [Accessed 20 May 2018].
ActivEx Limited, 2018. Actvex Limited. [Online] Available at: https://activex.com.au/ [Accessed 20 May 2018].
Australian Government , 2018. Company tax rates. [Online] Available at: https://www.ato.gov.au/Rates/Company-tax/ [Accessed 2018].
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