The cash flow of Farmpride Foods limited has been segmented into three parts comprising of cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. Items under the cash flow from operating activities include payments made to suppliers, receipt from customers, income tax paid, income tax received and finance costs. Net cash provided by operating activities has reduced from $ 13687 in year 2016 to $ 7661 in year 2017. This decline in net cash provided from operating activities is attributable to increase in payment from employees and suppliers. Cash flow from investing activities comprise of payment from property, equipment and plant and proceeds generated from sale of property, equipment and plant. The net cash used in investing activities has decline from $ 6416 to $ 2267 in year 2016 (Farmpride.com.au 2018). This is due to decrease in payment made for such assets and increase in proceeds from sale of equipment, property and plant. Cash flow from financing activities includes repayment of finance leases and repayment of borrowings. Net cash used in financing activities has declined from $ 4419 in year 2016 to $ 794 in year 2017 respectively because of decrease in repayment of finance lease. It can be seen that total amount of cash and cash equivalent has increased in year 2017 to $ 8038 as against $ 3438 (Farmpride.com.au 2018).
Comparative analysis of cash flow items for three years:
|
Particular |
($000) 2015 |
($000) 2016 |
($000) 2017 |
|
Net cash flows from operating activities |
9233 |
13,687 |
7,661 |
|
Net cash flows used in investing activities |
-535 |
-6,416 |
-2,267 |
|
Net cash flows used in financing activities |
-8619 |
-4,419 |
-794 |
The above table presents the evaluation of movement in cash flows from three different cash flow segments. It can be seen that net cash flow from operating activities has increased initially from $9233 in year 2015 to $ 13687 in year 2016 and thereafter it declined to $ 7661 in year 2017. Net cash flow in investing activities has increased $ 535 in year 2015 to $ 13687 in year 2016 and thereby it declined in year 2017 to $ 2267. Net cash used in financing activities decreased from $ 8619 in year 2015 to $ 4419 and further to $ 794 in year 2016 and 2017 respectively (Farmpride.com.au 2018).
Comparative analysis of cash flow items of Farmpride Food limited:
(Source: created by author)
The items that are reported in the comprehensive statement include revenue and other income, expenses, profit before income, profit from continuing operations and profit. Items listed under the expenses comprised of depreciation, employee benefits expenses, changes in inventories of finished goods, finance cost, other expenses and impairment of property, equipment and plant. Revenue and other income include other income and sales revenue (Forst et al. 2016).
Impairment of plant, equipment and property is the amount by which the carrying value of such assets exceeds their recoverable amount. The carrying amount of assets is their recognized amount in the balance sheet after taking into account accumulated depreciation and accumulated impairment losses.
Employee benefits are the expenses that are associated with the value of fringe benefits that is provided by employer to employees along with some other benefits such as leave entitlement, tax components such as contribution component and superannuation (Shapiro 2015).
Finance costs are the costs that are incurred by organization on the amount of loan that is borrowed in the form of interest. Such costs are mainly applicable to debt capital that is paid by organization on year to year basis. Depreciation on other hand is the reduction in value of assets due to their obsolescence (Richard 2014).
The items that are recorded in the comprehensive income statement are not included in the profit and loss statement. This is so because the profits are directly attributable to shareholders but the items under comprehensive income statement services serves specific purpose of organization. It can be explained with the help of example, any loss and gains generated from items such as impairment of property, equipment and plant are not adjusted in the profit and loss statement. This is so because it is kept aside by organization for making adjustments in the future revaluation of assets. Such items do not shareholders wealth generation directly. Shareholders received dividend on their shares based on the profit generated for a particular reporting period (Magalhães 2014).
The income tax expense reported by Farmpride Food limited is recorded at $ 3751 in year 2017 compared to $ 3358 in year 2016. It is suggested by figures that there is decline in the amount of taxes paid. Income tax expense incurred by organization in year 2015 stood at $ 2165. It is suggested by the figures that the amount of income tax expense incurred by organization has increased year on year.
Accounting profit recorded by organization stood at $ 3751 in year 2017 compared to $ 3358 in year 2016. The corporate tax rate that is applicable to organization in the current year stood at 30% (Farmpride.com.au 2018). Therefore, the accounting income generated by organization times the income tax rate is computed at (30% of 12232= 3669.6) and (30% of 11485= 3445.5) for year 2017 and 2017 respectively. Therefore, the amount of income tax paid is not equal to the amount of accounting income time’s taxation rate. The reason is attributable to the fact that the accounting profit is calculated based on accounting rules compared to income tax expense that is computed based on the taxation rules to which the organization adheres to (Heese et al. 2016).
The direct impact of deferred taxes is occurrence of deferred tax assets and deferred tax liabilities that are based on the temporary differences between in expenses and revenue that is recorded tax returns and accounting returns. There can be a tax difference between the income tax expense recorded for income tax payable and accounting books for tax returns. Deferred tax expenses is recorded when income tax payable is more than income tax expenses resulting from deduction of non cash expenses in the books of account. Deferred tax assets are created in this case because of large amount of income tax payable on tax returns (Forst and Salerno 2016). However, deferred tax assets are recorded under the noncurrent assets of the balance sheet items.
The balance sheet of Farmpride Food limited depicts that there is no deferred tax liabilities recorded. However, the amount of deferred tax assets that is recorded under the heading noncurrent assets stood at $ 859 in year 2017 compared to $ 777 in year 2016 (Farmpride.com.au 2018).
Recognition of deferred tax liabilities and deferred tax assets are done for the temporary differences when liabilities are to be settled and assets are expected to be recovered at the applicable tax rate. The reason why the deferred tax liabilities have not been recorded if they arise from initial recognition of goodwill. Recognition of deferred tax assets are done for deductible differences and any unused amount of tax losses. This is only because if such temporary difference or losses are utilized by the availability of future taxable amount. Deferred and current tax balances are attributable to the amount that is directly recognized in the equity (Peters and Romi 2014).
Yes, Farmpride Limited has recorded deferred tax assets of amount $ 859 and $ 777 in year 2017 and 2016 (Farmpride.com.au 2018). The current tax payable for year 2017 and 2016 stood at $ 1115 and $ 2121 and the amount of income tax expenses stood at $ 3751 in year 2017 compared to $ 3358 in year 2016 indicating that there is considerable differences between the reported figures. Such difference between income tax expense and income tax payable is due to difference in their rules of treating such accounts. Computation of income Tax expenses is done based on accounting rules that is recorded in the income statement. Income tax payable on other hand, is computed based on the rules of taxation and it appears under the heading liability of the balance sheet (Ehiedu 2014). This is so because the amount is due and is yet to be paid and hence they appear on the liability side of balance sheet.
The total amount of income tax paid by Farmpride food limited stood at $ 4839 in year 2017 compared to $ 3365 in year 2016 indicating that there is increase in amount of income tax paid. On other hand, the amount of income tax expense as recorded in the statement of comprehensive income stood at $ 3751 in year 2017 compared to $ 3358 in year 2016. It is depicted from the figures that there exist fewer difference between the amount of income tax expense and total amount of income tax paid for the reporting period. Amount of income tax expense is less than the amount of income tax paid. Usually, the amount of income tax expense is higher than the amount of income tax paid unlike the case of Farmpride food limited. The difference in the amount of figures reported is because of difference in accounting system with difference being created by the factor such as time. In addition to this, the difference in amount of tax expense and income tax paid is because of difference between the accounting and taxation rules (Alin-Eliodor 2014).
The treatment of taxation in the financial statement of Farmpride Food limited has been found to be quite interesting as there is segregated and proper disclosure of the treatment of taxation. There have been proper disclosure of the elements of taxation such as income tax paid, income tax payable, income tax expenses for which they are presented in the financial statements such as statement of comprehensive income and statement of profit and loss. Information about deferred tax assets and deferred tax liabilities are properly presented in the statement of financial position. From the analysis of annual report of the company, it has been found that the tax consolidated legislation has been implemented and a tax consolidated group has been formed from July 1, 2005. Allocation approach has been implemented by the group in determining the appropriate amount of deferred tax and current tax for allocating the taxes to the member group. The current tax assets and current tax liabilities have been recognized by Farmpride Food limited that arises from unused tax credits and unused tax losses that are assumed by the tax consolidated group. The current pre tax rates are used by organization for discounting the provisions when there is material impact of time value of money. Furthermore, with reference to the taxation there has been proper disclosure of the assumptions that has been made by organization. The assumption of deferred tax assets and deferred tax liabilities assumed that the income tax legislation is not faced with any adverse changes along with the anticipation that sufficient future assessable income will be derived by the consolidated entity that will enable them to employ and realize with the deductibility conditions that the law imposes. The proper disclosure of the treatment of taxation is of great use to the users of financial statement and investors seeking investment in the company (Dalnial et al. 2014).
References list:
Alin-Eliodor, T., 2014. Financial Statements Analysis. Journal of Knowledge Management, 4(5), pp.62-73.
Balakrishnan, K., Blouin, J. and Guay, W., 2018. Tax Aggressiveness and Corporate Transparency. The Accounting Review.
Bruce-Twum, E. and Mensah, C.C., 2015. Financial Statement Analysis.
Dalnial, H., Kamaluddin, A., Sanusi, Z.M. and Khairuddin, K.S., 2014. Detecting fraudulent financial reporting through financial statement analysis. Journal of Advanced Management Science, 2(1).
Ehiedu, V.C., 2014. The impact of liquidity on profitability of some selected companies: The financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), pp.81-90.
Farmpride.com.au. (2018). [online] Available at: https://www.farmpride.com.au/wp-content/uploads/2017/09/2017-Farm-Pride-Foods-Ltd-Annual-Report.pdf [Accessed 25 May 2018].
Forst, A. and Salerno, D.F., 2016. Ten Years of Mandatory Use of IFRS in the European Union: A Status Report. Journal of Corporate Accounting & Finance, 27(5), pp.29-36.
Heese, J., Khan, M. and Ramanna, K., 2015. Political Standards: Corporate Interest, Ideology, and Leadership in the Shaping of Accounting Rules for the Market Economy. Journal of Accounting & Economics, 64(20), pp.2-3.
Jefrey, C. ed., 2018. Research on professional responsibility and ethics in accounting. Emerald Publishing Limited.
Kaur, M., Aggarwal, N. and Gupta, M., 2017. An Investigation into Returns from Financial Statement Analysis among High Book-to-Market Stocks. Indian Journal of Economics and Development, 13(2), pp.353-358.
Lee, T.A. and Parker, R.H. eds., 2014. Evolution of Corporate Financial Reporting (RLE Accounting). Routledge.
Magalhães, M.M.C., 2014. Value investing and financial statement analysis (Doctoral dissertation).
Peters, G.F. and Romi, A.M., 2014. Does the voluntary adoption of corporate governance mechanisms improve environmental risk disclosures? Evidence from greenhouse gas emission accounting. Journal of Business Ethics, 125(4), pp.637-666.
Richard, P., 2014. The Role of the Accounting Rate of Return in Financial Statement Analysis. The Continuing Debate Over Depreciation, Capital and Income (RLE Accounting), 67(2), p.235.
Shapiro, D.M., 2015. Assessing Corporate Governance in M&As. Journal of Corporate Accounting & Finance, 26(2), pp.35-39.
Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download