Analysis Of Cash Flows Statement And Other Comprehensive Income Statement Of JB Hi-Fi Company

Comparative analysis of the all three main flow of activities

With the changes in International accounting disclosure, each and every company needs to change their reporting frameworks with a view to establish the nexus between the domestic reporting framework and international reporting framework. In this report, JB Hi-Fi Company has been taken into consideration.

The cash flow statement of the company reflects the flow of cash in the particular year, irrespective of the fact whether it belongs to present year or not. There are several changes in the cash flow statement activities (Brigham, and Ehrhardt, 2013).

The non- cash items shown in the operating activities have increased to AUD $ 191 million in 2017 which is AUD $ 34 million more as compared to last five year data. It shows that Company has increased the depreciation amount and increased the operating expenses and income throughout the time.

The cash outflow in the investing activities has increased to AUD $ 886 million which had happened due to the purchase of machineries and plants in 2017.

The financial activities have also shown inflow of cash AUD $ 396 in 2017 which arise due to the issues of common stocks to shareholders (Brigham, and Ehrhardt, 2013).

The cash dividend paid has  increased the cash outflow in 2017 by AUD $ 119 million which shows that company has paid good amount of dividend in the present year.

In the end, it could be inferred that that the free cash flow has changed by AUD $ 21 million since last five years. It shows that company has increased its overall cash inflow and outflow from all of its activities with the drastic rate since last five years.

JB HI FI LTD  (JBH) Statement of  CASH FLOW
Fiscal year ends in June. AUD in millions except per share data.	2017-06	2016-06	2015-06	2014-06	2013-06
Net cash provided by operating activities	191	185	180	41	156
Net cash used for investing activities	-886	-52	-44	-38	-38
Net cash provided by (used for) financing activities	716	-131	-130	-28	-91
Free cash flow	142	133	137	5	121

This analysis shows that company has changed its free cash flow by AUD $ 21 million since last five year. However, the main changes in cash outflow arise in the investing activities and inflow of cash arises in the financial activities due to the issue of shares.

There are several items have been recorded in the other comprehensive income statement such as total revenue, Gross profit, operating expenses, interest expenses and provision for the income tax.

JB HI FI LTD  (JBH) Cash Flow Flag INCOME STATEMENT
Fiscal year ends in June. AUD in millions except per share data.	2017-06	2016-06	2015-06	2014-06	2013-06
Revenue	5628	3954	3652	3484	3308
Cost of revenue	4398	3089	2854	2745	2610
Gross profit	1230	865	798	739	699
Operating expenses
Sales, General and administrative	1434	1006	931	884	839
Other operating expenses	-472	-361	-334	-336	-318
Total operating expenses	963	644	597	548	521
Operating income	268	221	201	191	178
Interest Expense	11	4	6	9	10
Other income (expense)	2	1	1	0	1
Income before income taxes	259	218	196	183	168
Provision for income taxes	87	66	59	54	51

 However, provision for the income tax and depreciation charged and other non-cash flow charges are not recorded in the cash flow statement.

As per my understanding, only those items which are related to the revenue expenditure and income have been recorded in the income statement of JB Hi Fi Company.  The total revenue recorded shows the total income; provision for the income tax reflects the accounting for the tax and interest expenses charged over the profit so deducted from the income statement. The Earning per share is also the amount of payment made to shareholders (Bekaert, and Hodrick, 2017).

There are several items recorded in the Income statement such as Total revenue, Gross profit, operating expenses, interest expenses and provision for the income tax. However, Advance payment to clients and accrued expenses payment have not been recorded in the profit and loss accounts of the company but shown in the cash flow statement. These items have not been recorded as these payment does not belong to the prevision year of the company so will not be charged from the previous year’s profit. This accounting practice helps in finding the true and fair value of this profit earned by company (Bekaert, and Hodrick, 2017).

Explain, why this is with reason

Tax is the amount of money which is charged over the profit earned by company and paid to government as legal liability.  In 2016, JB Hi-FI company had income tax payment of AUD $ 86.8 million which went down to AUD $ 65.6 million in 2017.

Particular(AUD $ in million)	2016	2017
Income tax expenses	86.8	65.6

Company has increased its interest expenses by increasing the debt funding which is used by the management to reduce its overall tax payment. 

After analysing the annual report, it could be inferred that the company’s tax rate times expenses shown is not the same with the tax payment made by company in its income statement (Bekaert, and Hodrick, 2017).

 JB Hi-FI Company has paid the income tax AUD $ 65.6 million in 2017 which covers the current year tax and deferred tax payment for last years as well. The company’s tax rate times expenses shown should be computed by using the Accounting income * 30% tax rate, i.e. AUD $ 259*30%.  The amount of tax should be 77.7 million.  (Garrett, Hoitash, and Prawitt, 2014).

• The treatment of the recording of the tax in the income statement is different as per the accounting rules and standards and taxation rules and regulation. .
• The tax expenses shown in the income statement is based on the income tax rules and regulation. On the other hand, manual calculation of company’s tax rate time’s expenses is based on the accounting rules.
• Two reason for the changes in this tax payment

1. Revenue and expenses charged in the profit and loss account may be deductible as per the accounting rules and standards but may not be allowed by the taxation rules.
2. There are changes in the recording of the expenses such as deprecation accounting, recording of the bed debts and other charges as per the accounting and income tax rules AASB-112 (Brigham, and Ehrhardt, 2013).

The deferred tax liabilities shown in the balance sheet of JB Hi-FI Company is AUD $ 8.2 million. The deferred tax liabilities is recognized and carried forward to the extent to which it is reasonably sufficient future taxable income against deferred tax assets is realised. JB Hi-FI Company has deferred tax liabilities in 2017 which is shown in the liabilities side of the balance sheet. The treatment of the recording of the tax in the income statement is different as per the accounting rules and standards and taxation rules and regulation which resulted to the recording of the deferred tax assets and liabilities. If company has charged higher tax revenue due the difference between the accounting and taxation rules then excess payment to government would be recorded as deferred tax assets and if the payment charged is less due to the same reason then the same would be recorded as deferred tax liabilities (JB HI-FI, 2017).

JB Hi- FI has shown deferred tax liabilities in its books of accounts. It means it had paid more tax to the government.

Particular (AUD $ million)	2017	2016
Deferred tax liabilities	8.2	0

Current tax assets and income tax payable recorded by company

The current tax payable by JB HI Fi Company is AUD $ 4.9 million in which have gone up to AUD $ 9 million in 2017 (JB HI-FI, 2017).

The income tax payable is the amount recorded by the company and need to be paid as per the income tax rules and AASB 112 (Garrett, Hoitash, and Prawitt, 2014).

The deferred tax payment by JB HI FI Company is AUD $ 8.5 million

Particular(AUD $ in million)	2016	2017
Income tax payable	4.9	9

The main reason of differences between the both is related to income tax is charged on the profit of the company and income tax payable is the accumulated amount of the outstanding tax which company will pay in future and recorded in the liabilities side of the balance sheet (Pomeranz,  2015).

Cash flow statement shows the inflow and outflow of cash in the present year irrespective of the years it belongs (Robinson, Stomberg, and Towery, 2015).

The cash flow in the income tax shown in the cash flow statement is $98.5 million which covers all the tax payment (Towery, 2017). 

The income tax expenses recorded in the income statement is not same as with the income tax payment shown in the cash flow statement (Pomeranz, 2015).

Reason

Cash flow statement covers all the tax payment in the current year irrespective of the years it belongs. Tax charged on the profit is done as per the income taxation rules of AASB112 (Hanlon, Maydew, and Saavedra, 2017). 

Interesting thing

The tax payment as per the AASB 112 increases the tax payment and blocks good amount of cash of company (Kubick, et al. ., 2016).

With the changes in the income tax rules, it might be hard for the company to determine the accurate tax payment (Dyreng, Hanlon, and Maydew, 2017).

Surprising thing

The main surprising thing about the recording of the tax is that company can never record deferred tax assets and deferred tax liability at the same time in the balance sheet (JB HI-FI, 2017).

Difficulty in recorded the entire tax amount

The main difficulty is related to recording deferred tax assets and deferred tax liability in the books of accounts. It blocks high amount of cash if company had deferred tax asset (Watson, 2017).

Conclusion

The deferred tax liabilities and assets recorded in the books of accounts of the company is the reason of difference between the domestic reporting framework and international reporting framework. Now in the end, it could be inferred that proper rules should be followed by company to mitigate the taxation issues.

References

Bekaert, G. and Hodrick, R., 2017. International financial management. Cambridge University Press.

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

Dyreng, S., Hanlon, M. and Maydew, E., 2017. When does tax avoidance r

Garrett, J., Hoitash, R. and Prawitt, D.F., 2014. Trust and financial reporting quality. Journal of Accounting Research, 52(5), pp.1087-1125.

Hanlon, M., Maydew, E.L. and Saavedra, D., 2017. The taxman cometh: Does tax uncertainty affect corporate cash holdings?. Review of Accounting Studies, 22(3), pp.1198-1228.

JB HI-FI, 2017., Annual report., [Online]., Available from https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_JBH_2016.pdf  [Accessed 14th May, 2018].

Kubick, T.R., Lynch, D.P., Mayberry, M.A. and Omer, T.C., 2016. The effects of regulatory scrutiny on tax avoidance: An examination of SEC comment letters. The Accounting Review, 91(6), pp.1751-1780.

Pomeranz, D., 2015. No taxation without information: Deterrence and self-enforcement in the value added tax. American Economic Review, 105(8), pp.2539-69.

Pomeranz, D., 2015. No taxation without information: Deterrence and self-enforcement in the value added tax. American Economic Review, 105(8), pp.2539-69.

Robinson, L.A., Stomberg, B. and Towery, E.M., 2015. One size does not fit all: How the uniform rules of FIN 48 affect the relevance of income tax accounting. The Accounting Review, 91(4), pp.1195-1217.

Towery, E.M., 2017. Unintended consequences of linking tax return disclosures to financial reporting for income taxes: Evidence from Schedule UTP. The Accounting Review, 92(5), pp.201-226.

Watson, L. (2017). Discussion of’Does the Deferred Tax Asset Valuation Allowance Signal Firm Creditworthiness?’.