The items under the 2017 Consolidated Statement of Cash Flows of Cromwell Property Group are discussed below:
Cash Flow from Operating Activities: The main items of Cromwell Property Group under this head are receipts and payments for the course of operations, interest and distributions received and payment of finance cost and income tax (cromwellpropertygroup.com, 2018).
Decrease in the receipts in the course of operations can be seen in 2017 as compared to 2016 that is $342 million from $354.7 million and decrease in revenue might be the reason for this. After that, increase in payment in the course of action can be seen in 2017 as compared to 2016 that is ($154.4 million) from ($150.2) million and increase in credit purchase might be the reason for this (cromwellpropertygroup.com, 2018). Decrease in interests received in 2017 can be seen than 2016 that is $2.1 million from $4.2 million and decrease in investment by the company can be the reason for this. Distribution received is the distribution of profit and increase in this item can be seen that is $24.6 million in 2017 and $8.7 million in 2016. Increase in the payment of finance cost is there in 2017 as compared to 2016 that is ($55.4 million) and ($54.8 million) respectively. Lastly, increase in profitability leads to the increase in tax payment by the company; that is ($4.6 million) and ($3.5 million) in 2017 and 2016 respectively (cromwellpropertygroup.com, 2018).
Cash Flow from Investing Activities: Cromwell Property Group has recorded many items under this head of cash flow. Cromwell Property Group had to pay for purchasing the investment property that leads to the increase to ($139.3 million) in 2017 from ($74.9) million in 2016. However, decrease in the proceeds from the sales of the same can be seen. After that, decrease in the payment for equity investment can be seen that is ($17.9 million) in 2017 and ($18.6) million in 2016 (cromwellpropertygroup.com, 2018). Decrease in the payment of intangible assets can also be observed in 2017 that is ($0.4 million) and ($0.9 million) in 2016. At the same time, increase in the payment for property, plant and equipment can be seen that is ($1.3 million) in 2017 and ($0.7 million) in 2016 and the intention to increase the asset base can be the reason behind it. There has been decrease in the proceeds from the repayment of related party loans in 2017 that is $1.2 million from $12.6 million in 2016. It can be observed that Cromwell Property Group has made some major acquisition of the disposal group in 2017 that is ($145.6 million) in 2017 where there was not any this kind of acquisition in 2016 (cromwellpropertygroup.com, 2018).
Cash Flow from Financing Activities: The presence of many items can be seen under this head of cash flow of Cromwell Property Group. There is major increase in the proceeds from bank borrowings in 2017 that is $302.7 million from $186.9 million in 2016 and drawn of loans is the major reason for this. At the same time, Cromwell Property Group has made major repayment of bank and other borrowings that is ($95.6 million) in 2017 and ($79.8 million) in 2016 (cromwellpropertygroup.com, 2018). Minor increase in the proceeds from the stapled securities can be seen in the year 2017 that is $1.1 million from $1 million in 2016. Due to the increase in the profitability of Cromwell Property Group, the company paid increased dividends in 2017 as compared to 2016 that is ($139.9 million) from ($130.9 million). Cromwell Property Group has not made any payment for the issue of equity for the year 2017 as compared to ($0.1 million) in 2016. Lastly, Cromwell Property Group has paid ($2.6 million) for the settlement of the derivatives financial instruments and this outflow was nil in 2016 (cromwellpropertygroup.com, 2018).
Figure 1: Analysis of the Cash Flow Heads of Cromwell Property Group from 2015 to 2017
(Source: cromwellpropertygroup.com, 2018)
As per the above figure, there is major increase in the cash inflow from operating activities in Cromwell Property Group from 2015 to 2016; that is $144.2 million and $159.1 million in 2016 respectively. Increase in the receipts in the course of operations is the prime reason for this increase. However, decrease in this cash inflow can be seen in 2017 that is $154.3 million. Decrease in receipts and increase in payment in the course of operations is the major reason for this (cromwellpropertygroup.com, 2018).
It can also be observed from the above figure that there is a continuous increasing trend in the cash outflow from investing operations in Cromwell Property Group; that is ($51.4 million), ($176 million) and ($189.7 million) in 2015, 2016 and 2017 respectively. Major increase in payments in some of the heads like payment for investment properties, borrowings, loans, property, plant and equipment and others is the main reason for this increase (cromwellpropertygroup.com, 2018).
Improvement in the cash flow under financing activities in Cromwell Property Group can be seen that is ($94 million), ($50.8 million) and $59.9 million in 2015, 2016 and 2017 respectively. Some of the major aspects like proceeds from bank borrowings, issue of stapled shares and others are responsible for this (cromwellpropertygroup.com, 2018).
From the 2017 Consolidated Statements of Comprehensive Income, it can be observed that Cromwell Property Group has reported three items under the other comprehensive income statement. They are ‘Items that may be reclassified to profit or losses, ‘Exchange differences on translation of foreign operations’ and ‘Income tax related to these items’ (cromwellpropertygroup.com, 2018).
Understanding about the above-mentioned items is provided below:
Reclassification of profit or loss is considered as one major aspect for the business organizations as it helps in protecting the integrity of profit or loss so that the users of the financial statements can be provide with the relevant information about the profit and loss related transactions that occurred at the current financial year. Moreover, it assists in improving the comparability of the similar items recognized either profit or loss (Hodgson & Russell, 2014).
Exchange difference of the transactions of foreign operations is considered as another major aspect for the business organizations that help the business entities in converting the foreign currency of the cross-border subsidiaries into the current in which the parent company continues their financial reporting (Hutson & Laing, 2014). Thus, it is provided with great importance at the time of business consolidations so that the determination of foreign currency into the actual currency can be done. This technique demands the companies to re-measure the foreign currencies so that the profit o loss from the cross-border subsidiaries can be recorded in the currency of the parent company (Jacque, 2013).
The Australian taxation law puts the obligation on the companies to impose taxation of the following two aspects. For this reason, this taxation expense in recorded under the other comprehensive income statement.
The statement of other comprehensive income provides the users with the mix view about the actual profit and comprehensive profit of the companies so that the companies can present a diversified picture of company profitability (Eaton, Easterday & Rhodes, 2013). Cromwell Property Group prepared the other comprehensive income statement so that they can provide the company with all the required information about the above-discussed items of other comprehensive income. In this context, it needs to be mentioned that other comprehensive income statement is a mixture of standard income and other comprehensive income. Thus, in the presence of all the above factors, the above-discussed items of other comprehensive income do not come under the income statement or the profit or loss statement of the business entities (Khan & Bradbury, 2014).
It is the obligation on Cromwell Property Group to carry out their taxation operation as per the regulation of Australian taxation law. The applicable tax rate for the company for the year 2017 and 2016 are 30%. According to the financial statements, the reported income tax expenses for Cromwell Property Group for the year 2017 and 2016 are $1.5 million and $3.5 million respectively (cromwellpropertygroup.com, 2018).
From the analysis of the financial statements of Cromwell Property Group, it can be seen that the company has difference in reported taxation expenses and taxation expenses as per the applicable tax rate. There are some reasons for this difference. Fair value impairment is one of the reasons and the group had to charge income tax on these after the reporting period. The next reason is the acquisition of some entities by Cromwell Property Group trust and the company had to adjust tax on this transaction. Change in the recognized tax losses is the next reason for the difference. Due to this, Cromwell Property Group had to adjust taxation on this item after the reporting period. One major reason is the adjustments of the taxation expenses for the company with the taxation expense of 2017 and 2016. This adjustment also led to the difference in the taxation expenses (cromwellpropertygroup.com, 2018).
The presence of both deferred tax assets and deferred tax liabilities can be seen in the financial statements of Cromwell Property Group. The reported differed tax assets by the company for the years 2017 and 2016 are $3.4 million and $1.3 million respectively. On the other hand, the reported deferred tax liabilities for the years 2017 and 2016 are $0.9 million and $1.9 million (cromwellpropertygroup.com, 2018). According to the taxation policy of Cromwell Property Group, the main reason for the company for reporting both differed tax assets and liabilities is the tax rate difference when recovering the assets and settlements of liabilities. The factors responsible for the reporting of deferred tax assets are employee benefits, transactions costs, investment scheme investments, tax losses recognition and unrealized foreign currency loss or gain. On the contrary, the right of the management for intangible asset is the reason for deferred tax liabilities (Laux, 2013).
The financial statements of Cromwell Property Group show both the presence of current tax assets and income tax payable or current tax liability. The current tax assets of Cromwell Property Group for the years 2017 and 2016 are $1.2 million and $1.7 million respectively. On the other hand, the recorded current tax liability for 2017 and 2016 is $1.7 million and $2.2 million respectively (cromwellpropertygroup.com, 2018). There is one major reason that creates difference between income tax expenses and income tax payable. Income tax expenses refer to the taxation expense for the present financial year that Cromwell Property Group is needed to pay in the next year. However, income tax payable refers to that amount of income tax that the company is required to pay due to the less than required payment of the taxation expenses for the last year due to the different in tax rate or any other reason.
Cromwell Property Group has reported different taxation expenses in income statement and cash flow statement. The taxation expenses of Cromwell Property Group as per income statement for the years 2017 and 2016 are $1.5 million and $3.5 million respectively; and the taxation expenses for the group for 2017 and 2016 are $4.6 million and $3.5 million respectively (cromwellpropertygroup.com, 2018). Hence, difference can be seen. The income statement of the company includes the taxation expenses for the present financial year that needs to be paid in the next year. However, the cash flow statements include the taxation expenses; and it can be the advance payment of tax for the next year or the payment of income tax payable for the last year. This is the main reason for the difference (McGee, 2014).
It is interesting to observe the way Cromwell Property Group has carried out their taxation accounting by complying with all the required regulations and standards of Australian taxation law. For this reason, it is hard to find any confusing or surprising factor in the taxation operation of Cromwell Property Group. At the same time, the taxation treatment of Cromwell Property Group provides the users with the new insight about the adjustments of the elements in tax reconciliation statements so that there is not any taxation deficiency. Moreover, Cromwell Property Group has provided all the required clarifications and justifications about the taxation treatment of Cromwell Property Group so that the users do not face any difficulty in understanding the taxation adjustments.
References
Hodgson, A., & Russell, M. (2014). Comprehending comprehensive income. Australian Accounting Review, 24(2), 100-110.
Hutson, E., & Laing, E. (2014). Foreign exchange exposure and multinationality. Journal of Banking & Finance, 43, 97-113.
Jacque, L. L. (2013). Management and control of foreign exchange risk. Springer Science & Business Media.
Eaton, T. V., Easterday, K. E., & Rhodes, M. R. (2013). The presentation of other comprehensive income. The CPA Journal, 83(3), 32.
Khan, S., & Bradbury, M. E. (2014). Volatility and risk relevance of comprehensive income. Journal of Contemporary Accounting & Economics, 10(1), 76-85.
Laux, R. C. (2013). The association between deferred tax assets and liabilities and future tax payments. The Accounting Review, 88(4), 1357-1383.
McGee, R. W. (2014). The Ethics of Tax Evasion: A Case Study of Brazil. In Handbook of Research on Economic Growth and Technological Change in Latin America (pp. 374-393). IGI Global.
(2018). Cromwellpropertygroup.com. Retrieved 24 May 2018, from https://www.cromwellpropertygroup.com/__data/assets/pdf_file/0015/22920/CMW-2017-Annual-Report-final-web.pdf
(2018). Cromwellpropertygroup.com. Retrieved 24 May 2018, from https://www.cromwellpropertygroup.com/__data/assets/pdf_file/0023/22919/AnnualReport_CMW_2016.pdf
(2018). Cromwellpropertygroup.com. Retrieved 24 May 2018, from https://www.cromwellpropertygroup.com/__data/assets/pdf_file/0022/22918/AnnualReport_CMW_2015.pdf
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