Cash Flow from Operating Activities: This particular head of the cash flow of RFG includes some of the major crucial items. They are receipts from the customers, payment to the suppliers and employees, payment of interest and other finance cost and income tax paid (Mohanram 2014).
In RFG, receipts from the customers refer to the proceeds of the company from the credit sales. The 2017 statement of cash flow of RFG shows that there is an increase in the receipts from the customers that is $456,000,000 in 2017 and $332,754,000 in 2016 (rfg.com.au 2018). Increased credit sale has contributed to this increase. It is the obligation on the business entity to make timely payment to their suppliers as a result of the credit purchase from them. In addition, this outflow also includes the payment of wages and salaries to the employees. As per the 2017 cash flow statement, there is an increase in this payment that is $361,329,000 in 2017 and $239,623,000 in 2016 (rfg.com.au 2018). It is the obligation on RFG to make the payment for their borrowed loans that comes under this head as they are taken for carrying on the business operations. It can be seen that there is an increase in this payment that is $9,416,000 in 2017 and $9,036,000 in 2016 (rfg.com.au 2018). It implies that RFG has increased their borrowed loans. The last item is the payment of income tax that RFG is required to pay as per the regulations of Australian taxation law. This payment increased from $21,460,000 in 2017 to $19,298,000 in 2016 as the company has registered more profit in 2017 from 2016 (rfg.com.au 2018).
Cash Flow from Investing Activities: Under this head, the crucial items are payments for and proceeds from property, plant and equipment; payment for intangible assets; payment for business, interest received and amount advanced to other entities (Lee 2014).
RFG has to pay large amount of money while acquiring or purchasing the property, plant and equipment. As per the 2017 cash flow statement, there is a major increase in this cash outflow that is $30,650,000 in 2017 and $14,429,000 in 2016 (rfg.com.au 2018). The aim to increase the asset base is the main reason for this increase in outflow. At the same time, RFG receives proceeds from the sales of these assets and increase in this proceed can be seen that is $163,000 in 2017 and $131,000 million in 2016. RFG has to pay money while acquiring the intangible assets for business like license, copyright and others. Decrease in this outflow can be seen that is $537,000 in 2017 and $575,000 in 2016. In RFG, payment for business refers to the payment of money for acquiring other businesses. Increase can be seen in this expense in 2017 that is $67,195,000 in 2017 and $6,953,000 in 2016 (rfg.com.au 2018). This huge increase indicates towards the major business acquisition by RFG in 2017. The last item is interest received that RFG receives from their investments. Massive increase in this cash inflow can be seen that is $801,000 in 2017 and $486,000 in 2016 that implies the increased investment by the company.
Cash Flow from Financing Activities: Under this head, the major items are proceeds from the issue of shares and other securities; repayment and proceeds from borrowings; payment of dividend; payment for share issue cost and payment for debt issue cost (Mohanram 2014).
Proceeds from issue of shares and other securities refer to the income of RFG from the shares. As per the 2017 cash flow statement, RFG has gained $35,600,000 from this in 2017, but there was not any income from this in 2016. In addition, there is an increase in the proceeds from borrowings that is $189,500,000 in 2017 and $148,500,000 in 2016 (rfg.com.au 2018). At the same time, there is a slight increase in the repayment of borrowings that is $149,500,000 in 2017 and $148,372,000 in 2016. It implies that RFG does not have much mature borrowings in the year 2017. Payment of dividend refers to the payment of one portion of the profit of RFG among shareholders and increase in this payment can be seen that is $42,888,000 in 2017 and $31,456,000 in 2016 (rfg.com.au 2018). Increase in profit of RFG is the main reason for increased dividend payment. RFG has to incur a specific cost while issuing shares. Due to the increase in the number of issued share, increase in this expenditure can be seen that is $543,000 in 2017 and $47,000 in 2016. In the year 2017, reduction in the cost for issuing debt can be seen for RFG that is $223 (rfg.com.au 2018).
The following figure shows the increase or decrease in the three broad categories of cash flow of RFG from the years 2017, 2016 and 2015:
Figure 1: Analysis of Cash Flow of RFG
(Source: rfg.com.au 2018)
According to the above figure, there is a major increase in the cash flow from operating activities of RFG from 2015 to 2016; that $64,797,000; RFG received more proceeds from the customers in 2017 and also paid less income tax and these reason contributed to this increase. However, minor decrease in this can be noticed in 2017 that is $63,795,000 in 2017 as compared to $64,797,000 in 2016 due to the increase in tax payment and payment for suppliers (rfg.com.au 2018).
The improvement in cash outflow from investing activities of RFG can be seen in 2016 as compared to 2015 that is from -$210,920,000 to -$30,059,000 due to increase in interest received and reduced business acquisition. However, large amount of business acquisition along with increased purchase of property, plant and equipment increases this cash outflow in 2017 as compared to 2016; that is -$103,114,000 as competed to $30,059,000 (rfg.com.au 2018).
As per the above figure, there is large cash outflow in 2016 as competed to 2015; that is $179,056,000 in 2015 and -$32,177,000 in 2016; the major reasons for this outflow are the absence of proceeds from issue of shares along with large debt repayment and increased dividend payment. However, improvement of this situation can be seen in 2017 as the cash inflow is $31,946,000 due to the increase in proceeds from the issue of share, increased proceeds from borrowings and less repayment of debts (rfg.com.au 2018).
The main items under other comprehensive income statement are ‘difference in exchange on foreign operation translation, ‘Changes in the fair value of Cash flow Hedges’ and ‘income taxation on these items’ (rfg.com.au 2018).
The components of other comprehensive income of RFG are discussed below:
Difference in exchange on foreign operation translation is a major aspect for the companies and the business organizations use this tool for the conversion of foreign currency of the subsidiary companies into the parent company’s currency. Thus, at the time of the consolidations, organizations put major emphasis on the development of foreign currency translation reserve so that the determination of the reporting currency of the cross-border organization can be determined. This puts the obligation on the business entities for the re-measurement of the subsidiary company’s currency into the parent currency. In the last process, the reporting of profit or loss is done based on the actual reporting currency.
After that, cash flow hedge is another major important aspect for the companies and the business entities use this tool for the reduction or elimination of the exposures due to the changes in cash flows that are related to any particular asset or liability. In this process, the change in some specific risk is taken into consideration, like rate of interest, interest on debt and others.
It is the obligation on the business organizations to charge taxation on the above two factors; they are cash flow hedge reserve and foreign currency translation reserve. However, as these items are not included in the consolidated income statement, the tax expenses on these two items will not be the part of consolidated income statement.
In order to get the diversified view of the company’s profit, business organizations use the statement of other comprehensive statement. For RFG, the main reason behind the preparation of other comprehensive income statement is the provide description and information about the above-discussed items. Due to this reason, the statement of other comprehensive income is regarded as the mix of net income and other comprehensive income (Kim 2016). For all these reasons, these above-discussed items do not come in the income statement.
RFG is subjected to taxation under the rulings of Australian taxation law. As per Australian taxation law, it is the obligation on RFG to carry out their taxation operations based on 30 per cent tax rate. The recorded taxation expenses in the income statement for RFG are $25,686,000 and $23,620,000 for the financial year 2017 and 2016 respectively (rfg.com.au 2018).
From the observation of the taxation operation carried out by the company, one can gain understanding about the fact that the company has not reported the same taxation expenses as per the applicable tax rate in the income statement that indicates towards a difference. The existence of non-deductible expenses for the determination of taxable profit is one reason for creating this difference. Hence, $879,000 and $638,000 for the year 2017 and 2016 respectively was added with the tax expenditure by the company. Variation in the rate of tax is another reason that leads to the difference. 30 per cent is the tax rate of RFG and 28 per cent and 34 per cent is the tax rate of RFG’s subsidiary companies. Deferred tax assets are one major reason for the difference. For this reason, there is a deduction of $1700, 000 from the tax expenses of RFG (rfg.com.au 2018).
Deferred tax assets and liabilities form a major part in the taxation accounting of the business entities. RFG has reported both differed tax assets and liabilities in the 2017 Annual Report. The recorded deferred taxes assets of RFG are $13,657,000 in 2017 and $7,394,000 in 2016. The recorded deferred tax liabilities of RFG are $119,433,000 in 2017 and $115,908,000 in 2016 (rfg.com.au 2018). There are some reasons for this. In the presence of the difference in taxation rate, the company is sometimes required to make some extra payment for depreciation as compared to the actual depreciation expenses and for this reason, deferred tax assets can be seen. On the other hand, due to the difference in the profit, RFG was required to pay less amount of tax compared to the actual tax expenses. Thus, the company considers this as deferred tax liability.
There is not any current tax asset for the company in the financial year 2017. $4,455,000 is the recorded current tax assets of RFG for the year 2016. The recorded current tax liability of RFG is $2,546,000 (rfg.com.au 2018). From this, one can observe from the above that there is not any match in the taxation expenses in the income statement and the cash flow statement.
Some aspects can be held responsible for this. The existence of deferred tax assets largely contributes to this reason. There are instances of the payment of additional tax by the company that is considered as the deferred tax assets. Hence, difference needs to be there. Other two reasons for this is the difference in the financial accounting and taxation accounting. Depreciation expenses can be considered for example as difference in this expense can be seen under taxation ruling and financial accounting ruling.
Difference can be seen in the recorded income tax of RFG in the income statement and the payment of income tax in the cash flow statement. The recorded income tax expenses in the year 2017 and 2016 for RFG are $25,686,000 and $23,620,000. The payment of income taxation in the cash flow statement shows the amounts of $21,460,000 and $19,298,000 in the years 2017 and 2016 respectively. Some major reasons can be held responsible for this difference (rfg.com.au 2018). The income tax expenses in the income statement can be obtained from the application of the tax rate in profit before income tax of the company. Companies report the current year’s income tax in the income statement. Business organizations makes the payment of last year’s income tax payable or the coming year’s income tax and record them in the statement of cash flows. It is also required to be mentioned that he business organization include the taxation expenses in the cash flow statement in the company make any payment for the income tax for the advance year or the income taxation payment for the last year. These are the main reasons for difference.
The above discussion shows that the income tax accounting process of RFG does not have any confusing or difficult element as the company carry on their income tax accounting simply compiling with the required regulations. One can gain effective insight about the income tax treatment of the large organizations by observing the notes to the financial statements related to taxation. In addition, RFG has provided all the required justification and clarification of their taxation accounting through notes related taxation.
References
Celebrating 10 Years Of Transformative Growth, Creating Australia’S Premier Food & Beverage Comp (2018). Annual Report 2016. [online] Rfg.com.au. Available at: https://rfg.com.au/wp-content/uploads/2018/02/RFGAnnualReport2016.pdf [Accessed 21 May 2018].
Kim, J.H., 2016. Presentation formats of other comprehensive income after accounting standards update 2011-05. Research in Accounting Regulation, 28(2), pp.118-122.
Lee, T.A. ed., 2014. Cash Flow Reporting (RLE Accounting): A Recent History of an Accounting Practice. Routledge.
Mohanram, P.S., 2014. Analysts’ cash flow forecasts and the decline of the accruals anomaly. Contemporary Accounting Research, 31(4), pp.1143-1170.
Rfg.com.au. (2018). 2017 Annual Report. [online] Available at: https://rfg.com.au/wp-content/uploads/2018/02/RFGLAnnualReport2017.pdf [Accessed 21 May 2018].
Rfg.com.au. (2018). Annual Report 2015. [online] Available at: https://rfg.com.au/wp-content/uploads/2018/02/RFG2015AnnualReport.pdf [Accessed 21 May 2018].
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