Cash flow statement is considered as a vital financial statement for a firm that indicates inflows and outflows of cash within the business. The paper is also focussed on offering better viewpoint on the major items listed within the statement of cash flow of Retail Food Group (Arnold, Harris and Liu 2016). There are three important aspects mentioned within the statement of cash flow for the company “Retail Food Group” that is listed within the Australian Stock Exchange or ASX that is elaborated under:
Net cash flows from operations:
The section includes four vital items for Retail Food Group that includes consumer recepts, employee payments, interest payments, suppliers and few more. The consumer recepts can be considered as those amounts which are attained in case sales are carried out on credit by the company. In case of Retail Food Group, such amount is observed to get increased in the year 2016 to 2017 from $332,754,000 to $456,000,000 (Christ and Burritt 2017). This is due to the reason that the company was involved in high credit sales. In the same way, supplier payments indicate the settled amount for related products that were purchased by means of credit. This is observed to get elevated in case of Retail Food Group because of few further purchases in order to address the increasing consumer demand. Interest payments are deemed to be the amounts that are required to be paid by the company in order to deal with the undertaken short term loans. This is observed to get increased in the year 2017for the reason that it has increased loans in order to acquire additional inventories.
Net cash flows employed within investing activities:
The reported items within this part of the report includes the payments along with proceeds from plant, property and equipment, interest received along with payment of intangible asset. Plant and equipment payment can be understood as the incurred expense for purchasing or acquiring such items. Considerable increase in such item might be gathered in the year 2017. This is because of the reason that Retail Food Group has put increased emphasis on the asset base increase. In consideration to the same, decreased proceeds from such item is observed to get developed in the year 2017 (Rfg.com.au. 2018). In addition, payments related with the intangible assets indicate the amount that the company has experienced for attaining necessary intangible assets. Such expense is observed to decline a bit in the year 2017 and finally, payment of interest is deemed as the received amount as interest from the carried out investments. Increase in this item is present within the company for the reason that cash flows are realised in case of capital projects.
Net cash flows employed within financing activities:
Within this aspect, the major items includes the proceeds attained from the shares issuance, proceeds from along with the borrowings repayment, payment of dividend as well as debt and share issuance payment. The issuance related with the share proceeds might be recognised as the income attained from the securities issuance. It is observed to attain amount of around $35,600,000 in the year 2017; conversely, nothing was attained in the year 2016 to be the proceeds of such issuance. Such borrowing proceeds are deemed to increase in the year 2017 because of high amount of investments. This is due to the fact that the company has implemented the approach of borrowings repayment since the year 2015. In addition, enhancement in the payment of dividend might be recognised over the future years with great increase in the company’s net earnings.
Figure 1: Cash Flow Activities of Retail Food Group
(Source : Christ 2017)
The figure indicated above indicates the net cash flows attained from the operation of Retail Food Group has increased in 2016 in comparison to the year 2015 from $34,700,000 to $64,797,000. Conversely, a slight drop has been indicated in the year 2017 by the approximate amount of $63,795,000 (Li, Wang and Wruck 2017). This is due to the reason that there has been a considerable increase in the consumer receipts align with the increase in the payments made by the supplier. In addition, it might also be indicated that there has been a considerable decrease in cash flows attained from the investing activities of the company that is signified from the year 2015 to 2017 because of high payments for intangible assets along with plant and equipment. Additionally, the net cash flows attained for the financing activities of Retail Food Group has dealt with a considerable decrease in the year 2016 in comparison to 2015 from $179,056,000 to $32,177,000. Certain increase is also observed to be in the year 2017 to $31,946,000 (Munter 2017). This is due to the reason that the company has dealt with increased proceeds from the borrowings, share issuance along with few more. For this reason, it might be indicated that decrease as well as increase might be signified in numerous segments of the company’s cash flow statement.
The annual report for Retail Food Group in the year 2017 signifies that there are three vital items mentioned within the comprehensive income statement and this also encompass certain items. These items include cash flow hedge reserve, income tax as well as reserve for foreign currency translation (Kabir and Rahman 2016).
It is important to explain that the business organizations make increased use of reserve associated with foreign currency translation. This is done with having the intention of transforming the foreign subsidiary results of the parent organization to that currency within which the financial reporting is effectively conducted (Ioannou and Serafeim 2017). For this reason, it is deemed as a considerable aspect of the consolidation process for the companies. In this the ascertainment related with the functional currency of the foreign organization is initially carried out. After the commencement of this process, the companies consider measuring the foreign currency in the recent date of reporting focussed on the process of financial reporting. Additionally, the profit disclosure or that of loss is carried out on the actual reporting currency. The reserve for cash flow hedge is employed at the time when the planning is conducted in order to decrease or get rid of exposures taking place because of considerable change within financial assets cash flow or of the liabilities. This is carried out for the reason that few changes are subject to changes such as interest rate, debt interest and a few more (Jefrey 2018). The above mention items are not observed to be reported within the consolidated statement of income of Retail Food Group. For this reason, it is vital to indicate that the referred company are obliged for experiencing tax on the financial transactions in consideration to the taxation law. As the mentioned items are not reported within the statement of income, payments of income tax is associated with such items and are not explained within the income statement prepared by Retail Food Group.
The income statement of Retail Food Group is observed to act as an extended version of the company’s associated net earnings. In the previous years, the variation present within net earnings serves as a consideration of external factors related with the core business conducts. In addition to that, considerable volatility was experienced on the behalf of the shareholders for offering better return on their investments. Conversely, the Retail Food Group offers all the important details of the items listed within the comprehensive statement of income (Graham, Hanlon, Shevlin and Shroff 2017). In addition to that, such statement offers a detailed and holistic account for all such items that might not be explained within the company’s statement of income. Therefore, through encompassing all such causes, the three explained items are not mentioned within Retail Food Group’s consolidated statement of income.
It is also required to be explained that it is important for Retail Food Group to consider making tax payments in alignment with the Australian taxation law. Analysis of annual report of 2017 indicated that, the earnings before tax is observed to be $87,613,000. This is in comparison to $76,583,000 in the year 2016 (Gordon, Henry, Jorgensen and Linthicum 2017). The existing law needs a tax percentage of 30% on the earnings before tax. For this reason, tax rate of 30% is to be charged on the two mentioned figures in order to attain suitable net earnings. Conversely, Retail Food Group is deemed to report a tax expense of around $25,686,000 in the year 2017 in comparison to $23,620,000 in the year 2016.
The analysis carried above explains the evidences that are observed between the reported taxation expenses along with the tax costs that might be actually charged through implementing tax rate of 30% (Paton and Littleton 2017). These reasons might be observed in a situation where the reported tax expense is not properly resembled with the actual tax expense. The major aspects serves as the non-deductible expenses that facilitates in ascertaining taxable income for the reason that it has caused the consideration of $879,000 in the year 2017 along with $638,000 in the year 2016. Considerable changes in the tax rate are among the major causes for the same. In addition, tax rate of 28% is to be followed in Australia and for the business subsidiaries such tax rates are observed to be 28% and 34% accordingly. The deferred tax assets availability serves as a major reason for such observed changes as Retail Food Group might attain tax advantages. At the time such item is present subtraction of amount $177,000 will be done from the company’s tax expense. All of these items have resulted in the variations among actual tax expense along with reported tax expense.
Focused on the annual report of Retail Food Group for the year 2017, it has been gathered that the company has disclosed the deferred tax assets as well as liabilities within the footnotes of its financial statements. Deferred tax assets in the year 2017 are gathered to be $13,657,000 that was observed to be $7,394,000 in the year 2016. Moreover, the deferred tax liabilities were gathered to be around $119,433,000 in the year 2017 in contrast to the year 2016 that is $115,908,000.
Several causses have been articulated to be Retail Food Group in order to record deferred tax assets as well as tax liabilities. Recording of deferred tax assets is carried out focussed on high depreciation payments. This is also considered due to changes in the tax depreciation rte along with real deprecation rate. The vital reason observed for deferred tax liability is the changes within profit of Retail Food Group for the reason that lower tax payments are conducted.
The recent annual report of Retail Food Group does not indicate any recent tax asset for the year 2017. Conversely, current tax assets are deemed to be around $4,455,000 in the year 2016. There are numerous causes that resulted in the difference among the income tax expense and recent tax assets. Among them, deferred tax assets are deemed to be one of the reasons (Gao and Zhang 2016). It is also gathered that the companies experience additional tax in comparison to the real tax expense. An additional payment of tax is taken into consideration to be deferred tax responsible for certain changes. For example, variation in the depreciation expense might be gathered due to changes in the accounting regulations.
Retail Food Group is observed to experience taxation expense of around $25,686,000 in the year 2017 in composition to the year 2016 that is recorded to be $23,620,000. This is also observed within the income statement and moreover within the cash flow statement the tax expenses are observed to be $21,460,000 in the year 2017 in contrast to the year 2016 in which it is observed to be $19,298,000 (Gaertner 2014). There are numerous causes that gas contributed to cause such differences. The income tax expense is computed through implementing tax rate of 30% on the earnings before income tax. Conversely, payment of income tax is taken into account within net cash flows from the company’s operating activities. This indicates that payment of income tax can be done with satisfaction of remaining obligations of the firm. The income tax expense for the present year is observed within the statement of income for the current financial year. Conversely, for taxation expenses within the statement of cash flow, the tax payment for previous year or the future year payment of tax is considered. Focussing on all these causes, the major difference can be perceived to be within the taxation expenses.
Focussed on the above analysis it can be analysed that there are no surprising or confusing item that can be considered within the taxation treatment of Retail Food Group as it has carried out tax operations in compliance with the Australian taxation law. Considering the same, it might be an interesting aspect in observing the manner in which Retail Food Group has considered taxation expense (Darrat, Gray, Park and Wu 2016). The accessibility of deferred tax assets serves as an important reason for such differences and the company can attain tax advantages. For this reason, after proper analysis of the tax based accounting of Retail Food Group, a detailed knowledge can be attained based on the manner of conducting tax based operations in the company.
References:
Arnold, L.W., Harris, P. and Liu, M., 2016, January. CORPORATE ACCOUNTING MALFEASANCE: AN OVERVIEW. In Global Conference on Business & Finance Proceedings (Vol. 11, No. 1, p. 202). Institute for Business & Finance Research.
Christ, K.L. and Burritt, R.L., 2017. What constitutes contemporary corporate water accounting? A review from a management perspective. Sustainable Development, 25(2), pp.138-149.
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Darrat, A.F., Gray, S., Park, J.C. and Wu, Y., 2016. Corporate governance and bankruptcy risk. Journal of Accounting, Auditing & Finance, 31(2), pp.163-202.
Gaertner, F.B., 2014. CEO After?Tax compensation incentives and corporate tax avoidance. Contemporary Accounting Research, 31(4), pp.1077-1102.
Gao, S.S. and Zhang, J.J., 2016. Stakeholder engagement, social auditing and corporate sustainability. Business process management journal, 12(6), pp.722-740.
Gordon, E.A., Henry, E., Jorgensen, B.N. and Linthicum, C.L., 2017. Flexibility in cash-flow classification under IFRS: determinants and consequences. Review of Accounting Studies, 22(2), pp.839-872.
Graham, J.R., Hanlon, M., Shevlin, T. and Shroff, N., 2017. Tax Rates and Corporate Decision-making. The Review of Financial Studies, 30(9), pp.3128-3175.
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Li, Z., Wang, L. and Wruck, K., 2017. Accounting-Based Compensation Contracts, the Cost of Borrowing, and the Structure of Corporate Debt Contracts. Working Paper Chapman University.
Munter, P., 2017. FASB simplifies goodwill impairment accounting for public business entities. Journal of Corporate Accounting & Finance, 28(5), pp.63-68.
Paton, W.A. and Littleton, A.C., 2017. An introduction to corporate accounting standards (No. 3). American Accounting Association.
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