Analysis Of Tax Expenses And Activities Reported By Erm Power Limited In Annual Report

Que 1: Contributed equity, reserves, and retained earnings

Introduction:

This report explains about the tax expenses and the activities which have been handled and reported by Erm Power Limited (EPW) in its annual report. This report expresses about the various activities, international accounting rules, Australian accounting rules, accounting standards etc which are used by the professionals while calculating the tax amount and the presenting the amount in the annual report of the company.

Que 1:

The annual report of the company explains that the equity amount of the company includes the following items:

Contributed equity

Reserves

Retained earnings

Equity	2017	2016
	(Amt in ‘000)	(Amt in ‘000)
Contributed equity	3,35,012	3,32,355
Reserves	2,20,877	1,03,413
Retained Earnings	9,991	35,635
Total equity	5,65,880	4,71,403

Contributed equity is the total amount which is the total value of shares of the stockholders which have directly purchased by the shareholders from the company’s issue. The contributed equity of the company has been enhanced a bit from last year in 2017. Further, the reserves are the total amount which is kept by the company from the total net profit to sudden changes and the risk. The reserves of the company have been enhanced a lot in 2017 and it has taken place due to new policies of the company (Daly, and Farley, 2011). Lastly, retained earnings are the part of net profit of the company which is kept by the company for future investments. This amount has been decreased in 2017 as the company has paid more share of profit to dividend.

Que 2:

The tax expenses of the company are $ 51.7 in 2017 and on the other hand, $ 22 was the tax expenses of the company in 2016. It explains that the tax expenses of the company have been enhanced by 135% in 2017. It explains that the company has failed to manage a proper planning of effective tax system (Cheung and James, 2017). The revenues of both the companies have 4% differences only but the tax differences are way more than that which explains that company should work in the tax expenses and must make a proper tax planning policies. Following is the picture form the annual report of the company:

	2017	2016
	(Amt in ‘000)	(Amt in ‘000)
Income tax expenses	51,675	56,967

Que 3:

Further, the annual report of the company explains that the actual tax amount should be $ 15,798 according to the accounting profit of the company but the total expenses of the company is $ 51675 in 2017 and $ 21,966 in 2016 (FT, 2018). It explains that there is huge difference among the actual tax amount and the amount which has been shown in the income statement of the company.

	2017	2016
	(Amt in ‘000)	(Amt in ‘000)
Profit from continuing operations	51,734	56,967
Profit from discontinuing operations	925	1,241
	52,659	58,208
Income tax calculated at 30%	15,798	17,462

Que 2: Tax expenses

Theses changes have occurred in the financial performance and figures of the company because of capital loss which has not been recognized, deferred taxes adjustment, overseas tax rate differences, clean energy regulatory etc. It explains that the AASB 112 rules have been followed by the company to record and the present these calculations.

Que 4:

Further, the annual report of the company explains that the deferred tax liabilities and assets, both has been occurred in the financial year and it has been found that the current deferred tax assets of the company is $ 13,850 which has been enhanced from $ 6036. Further, it has been found that the current deferred tax liabilities of the company are $ 1,78,380 which has been enhanced from $ 99,917 (Shantapriyan, O’Donnell, Streeter and Hicks, 2014).

	2017	2016
	(Amt in ‘000)	(Amt in ‘000)
Deferred tax assets	13,850	6,036
Deferred tax liabilities	1,78,380	99,917

According to this analysis, it has been evaluated that the company has not calculated a perfect amount of tax. And that is why the excess calculates tax amount has been recorded in the assets side and the lower amount has been recorded in the liabilities side of the company.

Que 5:

Further, the annual report of the company explains that the current tax liabilities and current tax assets, both has been occurred in the financial year and it has been found that the current tax assets of the company is $ 0 which has been decreased from $ 94 (Tran, 2015). Further, it has been found that the current tax liabilities of the company are $ 18,088 which was $ 0 in 2016.

	2017	2016
	(Amt in ‘000)	(Amt in ‘000)
Current tax assets	–	94
Current tax liabilities	18,088	–

According to this analysis, it has been evaluated that the company has not paid the entire amount of tax expenses to the Australian government and thus this amount would be paid to the government in the next financial year. And that is why the current tax liabilities of the company have been enhanced (Pawsey, 2016). Further, the annual report also explains that in 2016, extra amount of tax has been paid by the company and it has been set off in the current year.

Que 6:

The tax expenses of the company according to the income statement of the company, are $ 51.7 in 2017 and on the other hand, $ 22 was the tax expenses of the company in 2016. Following is the picture form the annual report of the company:

	2017	2016
	( Amt in $ m)	( Amt in $ m)
Tax expenses	51.70	22

Further, it has been found that the company has paid $ 14,405 of tax to the government in 2017 and $ 22 has been paid in the last year (Bloomberg, 2018). Following is the picture of the annual report:

	2017	2016
	(Amt in ‘000)	(Amt in ‘000)
Tax Payment	14,405	22

Que 3: Actual tax amount and income statement

The above evaluation expresses that the tax amount in the income statement and tax amount in the cash flow statement of the company is quite different to each other. This differences has taken place due to current tax liabilities, deferred tax liabilities etc. (Garrett, Hoitash and Prawitt, 2014).  The balance amount would be paid by the company to the government in the next year.

Que 7:

The above evaluation on annual report of the company explains that various different, confusing, surprising, difficult aspects have been evaluated while conducting this study. The most confusing element of this report was the deferred tax assets and deferred tax liabilities of the company. Why the companies calculated that much tax amount that the balance amount is recorded by them in balance sheet as deferred tax liabilities and deferred tax assets (Brigham and Ehrhardt, 2013).

More, the interesting part of this report was different learning and excitement that how the tax amount in every financial statement could be different and later on, how much easy it is to evaluate the tax activities of the company.

Further, the surprising part of this report was the presentation and recording of the different tax figures. It was bit surprise that how a professional perform his duty without writing nay different amount if tax in the different items and activities of financial reports (Glasson, Therivel, and Chadwick, 2013).

Lastly, the difficult part of the company was to evaluate the exact value of the tax amount. It was difficult to evaluate the entire report and reach over a conclusion about the performance and the position of the company.

Conclusion:

To conclude, Erm Power Limited is the Australian company which has registered, recorded and presented all the taxation activities in its annual report according to the AASB 112. Further, it has been found through this report that taxation is an important element for an organization. Every registered organization is requisite to fill tax return and must pay the amount to the government. This report explains that Erm Power Limited is offering the enough knowledge about its taxation activities in annual report so that a better decision could be made by the stakeholders of the company and all other related parties of the company.

References:

Annual Report, 2018. Erm Power Limited. Retrieved on 19^th January 2018 from https://www.ermpower.com.au/wp-content/uploads/2017/09/ERM-Annual-Report-2017_WEB.pdf

Bloomberg, 2018. Erm Power Limited. Retrieved on 19^th January 2018 from https://www.bloomberg.com/quote/EPW:AU

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

Cheung, E. and James L. 2017. “Readability of Notes to the Financial Statements and the Adoption of IFRS.” Australian Accounting Review 26.2 (2016): 162-176.

Daly, H. E., and Farley, J., 2011. Ecological economics: principles andapplications. Islandpress.

FT, 2018. Erm Power Limited. Retrieved on 19^th January 2018 from https://markets.ft.com/data/equities/tearsheet/forecasts?s=EPW:ASX

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

Glasson, J., Therivel, R., and Chadwick, A., 2013. Introduction to environmental impact assessment. Routledge.

Pawsey, N., 2016. Project: Review of IFRS adoption in Australia.

Shantapriyan, P., O’Donnell, K., Streeter, J. and Hicks, B., 2014. Getting it Right: Directors’ Assessment of Information.

Tran, A., 2015. Can taxable income be estimated from financial reports of listed companies in Australia?. Browser Download This Paper.