Corporate Accounting may be defined as the preparation and presentation of financial reports for a company. Financial reports consist of Profit and Loss statement, Cash flow statement, balance sheet (Dyreng, Mayew and Williams 2012). This is done to analyze and interpret the financial performance of the companies. Financial statements follow certain rules and regulations and principles which are universally established (Hui, Klasa and Yeung 2012). Accounting also follows certain accounting standards on the basis of which the financial statements are prepared which varies from country to country.
Nearmap ltd is a company which provides high resolution of aerial imagery. It was earlier named Ipernica. Its headquarters is situated in Sydney, New South Wales. It is currently serving countries like Australia, New Zealand and USA. The CEO of the company is Rob Newland (Nearmap.com.au 2017). The company is specialised in capturing, processing and publishing of imagery. Ipernica acquired Nearmap for A4$ million in 2008 (Nearmap.com.au 2017). The company has surveyed actively around 70% of USA population centres many times in a year (Nearmap.com.au 2017).
Equity refers to different stocks and securities which are present in the stock market and which represents the ownership interest in the company. Equity is a term used to determine securities or a group of securities which gives the owner of such securities, right of ownership over the company from where the securities originate (Dong, Ryan and Zhang 2014).
The different types of equity which are shown in the balance sheet of Nearmap ltd as per 2016 and 2017 financial statements are discussed below:
The tax expenses as incurred by Nearmap ltd in the year 2017 amounts to $ 3770000 which is much more as compared to previous year figures. The company has followed tax policy as per the requirements of AASB. The tax expense figure as shown in the financial statements is further bifurcated in deferred tax expenses and current tax expenses. The current tax expense for the year 2017 is less as compared to previous year. However the deferred tax expense is more in 2017 than compared to previous year figure. This is the main reason due to which the company’s tax expenses for the year 2017 is more than previous year figure.
The tax expenses as shown by the financial statements are in accordance with relevant tax laws and rules. The tax expenses as shown for the year 2017 is $ 3770000 which is more as compared to previous year. The corporate income tax rate in Australia is 30%. This is charged on the net profit or loss which is earned by the business during that particular year. In 2017, Nearmap Ltd has a net loss of $ 1534000 as per the financial statements on which a tax rate of 30% is charged to get a figure of tax expense of $ 460000 for the current year. The total tax figure consist of deferred tax expenses which are of previous year, tax from United States, R&D grants, losses of prior period which are not recognized in the deferred tax expenses. Hence the figure of current tax expenses which is $ 460000 is according to the corporate taxation laws and there is no discrepancy in the figure. Nearmap Ltd is in accordance with the corporate tax rules of the country therefore the figure of current tax expenses shown is correct as per the tax rules.
Deferred tax asset arises when the company has paid taxes in excess amount than what was required (Harrington, Smith and Trippeer 2012). The company can claim tax relief for the overpayment of taxes in future. This relief which the company receives is treated as an asset of the company. This is a type of prepaid expenses and therefore these are treated as assets. On the other hand deferred tax liabilities is completely opposite of deferred tax assets (Harrington, Smith and Trippeer 2012). This happens when the tax liability paid by the company is less as compared to what is to be paid as per accounting income.
Deferred income tax is provided on all non permanent differences which arise on reporting date between the tax charged on assets and liabilities and their respective amounts for financial reporting purpose as per company’s requirements and policy (Laux 2013). The deferred tax assets and deferred tax liabilities of the Nearmap Ltd are $ 2060000 and $ 5594000 in 2017. Deferred tax assets and liabilities are considerations in financial statements only if they can be used to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same business and for the same accounting period under same tax laws. The deferred tax liabilities of Nearmap Ltd are much more than its deferred tax assets. The main purpose of recording deferred tax assets and liabilities is to acknowledge the difference in timing of when the tax was actually recognized in the financial statements and when the tax becomes effective. Another variation for which deferred tax assets and liabilities may arise is due the difference in treatment of depreciations in tax and accounts. The rate charged in tax may be different then what is charged as per accounting.
Income tax payable is a figure shown in the financial statement which indicates those tax liabilities which the company needs to pay to the government within a period of one year as per the relevant tax laws. These items come in the liability side of the balance sheet as a current liability. The analysis of financial statements of Nearmap ltd reveals that there is an income tax payable figure in the financial statements in 2017 which amounts to $ 298000. Income tax expenses, which is shown in the profit and loss account of the company is the aggregate figure of all taxes which the company is liable to pay or which is due (Dhaliwal et al. 2013). Accounting always recognises transactions on accrual basis which is a fundamental concept of Accounting (Weil, Schipper and Francis 2013). Therefore income tax payable will be total income tax which the company needs to pay and it contains tax liabilities of previous year as well as per the relevant tax codes whereas income tax expense is the actual amount of tax which is paid or is due during the year as per the accounting rules which are relevant in the country.
The income tax expenses which is shown in the profit and loss account of Nearmap Ltd is $ 3770000 which includes current income tax of $ 206000 and a deferred income tax expenses of $ 3564000 as shown in the notes to account of the company. However the income tax paid by the company as shown in the cash flow statement under operating activities head is $ 22000. It is clear that there exist a difference between the figure of income tax expenses as shown in profit and loss account and the figure of income tax paid in the cash flow statements. There can be various reasons for this difference in the balances. The company may be following the policy of paying tax in quarterly basis or in half yearly basis. The company may have just followed this policy and paid for a quarter or half year and thus the difference may have happened. Another reason may be that the income tax expense as shown in the profit and loss account contains the current tax liability which the company incurs in current year as well as deferred tax liability which arises due difference in treatment of transactions in tax and accounts.
The analysis of the financial reports of Nearmap Ltd shows that the company follows the AASB 112 for estimating the taxes of the company. The company has a current tax liability and a deferred tax liability which is shown in the notes to accounts and the combined figures comes under the statement of profit and loss of the company. Current tax assets and liabilities which appear in the balance sheet are either expected to be recovered or can be paid to the respective tax authority. The tax rate and laws which the company follows are in force and active during the reporting date. The company maintains current tax assets and liabilities which can be adjusted against tax which are to be paid in the future years. Deferred income tax assets are recognised in the financial statements for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses. The company and its wholly owned smaller firms follow tax consolidation structure.
Reference
Chadha, J.S., Corrado, L. and Meaning, J., 2012. Reserves, liquidity and money: an assessment of balance sheet policies.
Dhaliwal, D.S., Kaplan, S.E., Laux, R.C. and Weisbrod, E., 2013. The information content of tax expense for firms reporting losses. Journal of Accounting Research, 51(1), pp.135-164.
Dong, M., Ryan, S. and Zhang, X.J., 2014. Preserving amortized costs within a fair-value-accounting framework: Reclassification of gains and losses on available-for-sale securities upon realization. Review of Accounting Studies,19(1), pp.242-280.
Dyreng, S.D., Mayew, W.J. and Williams, C.D., 2012. Religious social norms and corporate financial reporting.Journal of Business Finance & Accounting, 39(7?8), pp.845-875.
Harrington, C., Smith, W. and Trippeer, D., 2012. Deferred tax assets and liabilities: tax benefits, obligations and corporate debt policy. Journal of Finance and Accountancy, 11, p.1.
Harrington, C., Smith, W. and Trippeer, D., 2012. Deferred tax assets and liabilities: tax benefits, obligations and corporate debt policy. Journal of Finance and Accountancy, 11, p.1.
Hui, K.W., Klasa, S. and Yeung, P.E., 2012. Corporate suppliers and customers and accounting conservatism.Journal of Accounting and Economics, 53(1), pp.115-135.
Laux, R.C., 2013. The association between deferred tax assets and liabilities and future tax payments. The Accounting Review, 88(4), pp.1357-1383.
Nearmap.com.au. (2017). High Resolution Aerial Maps & Imagery in Australia | Nearmap. [online] Available at: https://www.nearmap.com.au [Accessed 31 Dec. 2017].
Taylor, G. and Richardson, G., 2012. International corporate tax avoidance practices: evidence from Australian firms. The International Journal of Accounting, 47(4), pp.469-496.s
Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.
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