Accounting Reports are prepared the accountants by following the relevant accounting standards, principles and prevailing accounting rules. The accountants are responsible for the preparation and presentation of the annual reports of the company. A normal annual report consist of a statement of Income and Expenses of the year, a statement of financial change of the year, a statement of the changes in cash flow during the year (Kitching, Kašperová & Collis, 2015). Such annual reports of the company are published annually by the company which are then used by different stakeholders to assess the financial performance and the future objectives and goal of the business.
Liquefied Natural Gas Limited is an Australian based company which is publicly own. The company was formed in 2002 and was listed in the Australian Stock Exchange with the ASX code LNG in 2004. The company operates mostly In Australia and also in some parts of USA, Canada. The company is engaged in the liquefication of Natural Gas projects at the lowest cost as possible. The company aims to provide safe, energy-efficient, reliable natural gas liquefaction for the customers at the lowest minimum price possible (Liquefied Natural Gas Limited, 2018).
The different types of equity which the company has shown in the balance sheet of the company are contributed equity, reserves and accumulated losses. The equities of the company refer to the components which are associated with the share capital of the business. The types of equity which are shown in the balance sheet of Liquefied Natural Gas Limited are discussed below:
The income tax expense of the company as shown in the statement of profit and loss account of the company is $1,11000 in 2017. The company did not have to bear any income tax expenses in the year 2016 as the company got a refund of taxes paid which might be for previous year or same year but different quarters. The refund which the company gets is of $28,000 which was deducted from the net loss which the company had in 2016. All the rules and regulations of tax laws prevailing in Australia are followed by the company Income tax rate of Liquefied Natural Gas Ltd.
The change in current income tax is due to the profit which the company has earned or adjusted from the net profit before tax. The tax which is followed by the company is either enacted from earlier or recently enacted till the reporting date. The company operates in Australia and the tax rate prevalent in Australia is at 30% rate of income tax (Feld, Heckemeyer & Overesch, 2013). The prime facie tax rate of the company as per the notes of account is at 27.5%. The main reason for this may as the company is earning losses from the past two year the company does not satisfy the slab for higher taxes and so the company has to follow the lower slab rates as set by the Australian Tax Office (ATO). The changes in the tax rate is mentioned in the notes to accounts of the company and the notes to accounts of the company also mentions the fact that the company follows all the tax rules and regulations (Saez, Slemrod & Giertz, 2012).
As per the company’s policy, deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements. The company also uses the tax base which is required for the necessary calculations. As per the balance sheet of the company, the company does not possess any deferred tax assets or deferred tax liability for the year 2017. However the notes to accounts of the company shows that the company has certain deferred tax which are not recognized by the company and hence it is not shown in the balance sheet of the company (Spengel & Zöllkau, 2012). The company does not have any deferred tax asset or liability as such an item is not displayed in the balance sheet of the company. As per the policies of the company, the company’s deferred tax assets and liabilities are set off when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. Deferred tax assets and liabilities are measured at tax rates that are expected to apply in the period in which the liability is settled or the asset is realized. The tax rates and laws used to determine the amount are based on those that have been enacted or substantially enacted by the end of the reporting period (Lignier & Evans, 2012). The company does not have any current tax asset or current tax liabilities as shown in the balance sheet of the company during the year 2017. The income tax payable as per the balance sheet of the company that the company does not have any income tax payable in the year 2017. The income tax payable for the year 2016 is shown at $9000. The income tax payable is set off against the income tax expenses of the company.
The income tax expenses which is shown in the profit and loss statement of Liquefied Natural Gas ltd has a income tax expense of $111,000 whereas the analysis of the cash flow statement states that the company has received tax refunds from the Australian tax authority for the year 2017. The amount of refund which the company receives for the year 2017 amounts to $497,000 and the same refund which the company had received in the previous was a much bigger amount of $11,96,000 as compared to the figure of 2017. This may be due to the fact that the company has been incurring losses from the previous year. In case of losses a company is not required to pay any taxes if the company is able to prove that the company has earned losses during the year. In this case the company receive refunds for the tax which the company had payed previously during the year or for prior years (Graham, Raedy & Shackelford, 2012). Therefore it is evident that the company is receiving refunds from the tax authorities due to the losses which the company has incurred in both 2016 and 2017 as per the analysis of the cash flow statement.
The financial reports analysis of Liquefied Natural Gas Ltd shows that the company follows the AASB 112 in order to calculate the tax of the company. The company has an effective rate of tax of 27.5%. The company does have any deferred tax assets or liabilities which are shown in the balance sheet of the company(Gómez Sabaini & Jiménez, 2012). However the company has an unrecognized deferred tax which is mentioned in the notes of account of the company. The company also does not have any current assets as per the balance sheet of the company (Lewis, 2013). As per the analysis of the company’s financial report it can be said that the company does not have any significant tax structure for the increasing losses which the company has suffered for the years of 2016 and 2017.
Conclusion
The balance sheet of the company shows no deferred assets or liabilities. The company also has received tax refunds from the tax authority of the company which clearly shows that the company is incurring that much loss that the company is not required to pay that much amount of taxes which results from over payments of taxes in prior periods.
References
Feld, L. P., Heckemeyer, J. H., & Overesch, M. (2013). Capital structure choice and company taxation: A meta-study. Journal of Banking & Finance, 37(8), 2850-2866.
Gómez Sabaini, J. C., & Jiménez, J. P. (2012). Tax structure and tax evasion in Latin America.
Graham, J. R., Raedy, J. S., & Shackelford, D. A. (2012). Research in accounting for income taxes. Journal of Accounting and Economics, 53(1-2), 412-434.
Kitching, J., Kašperová, E., & Collis, J. (2015). The contradictory consequences of regulation: The influence of filing abbreviated accounts on UK small company performance. International Small Business Journal, 33(7), 671-688.
Lewis, M. K. (2013). Off-balance sheet activities and financial innovation in banking. PSL Quarterly Review, 41(167).
Lignier, P., & Evans, C. (2012). The rise and rise of tax compliance costs for the small business sector in Australia.
Liquefied Natural Gas Limited – About Us LNGL at a Glance. (2018). Lnglimited.com.au. Retrieved 27 January 2018, from https://www.lnglimited.com.au/irm/content/lngl-at-a-glance.aspx?RID=172
Saez, E., Slemrod, J., & Giertz, S. H. (2012). The elasticity of taxable income with respect to marginal tax rates: A critical review. Journal of economic literature, 50(1), 3-50.
Spengel, C., & Zöllkau, Y. (Eds.). (2012). Common Corporate Tax Base (CC (C) TB) and determination of taxable income: An international comparison. Springer Science & Business Media.
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