Corporate accounting is an accounting part which focuses on the annual report of the business and the other reports which contains the accounting and financial items. The main operations of corporate accountant is to check that whether the proper recording and presentation rules of AASB has been followed and applied by the company in order to depict and present the financial statement in the annual report of the business (Bhasin, 2015). It also focuses that the proper financial notes about the accounting and financial transaction has been given in the annual report or not.
The main motto of corporate accounting is to set a similarity among the annual reports of all the companies so that the shareholder can’t get confuse in the performance and position of any of the business. The better outcome could be concluded by the shareholders ad other stakeholders of the business on the basis of the comparison. In the report, JB HI FI and Kathmandu limited has been taken into the context to perform the corporate accounting study. Australian retail industry is the industry of the both the firms.
The brief about both the Australian retail firm has been given below:
JB HI FI:
JB HI FI is an Australian retailing company which is operating its business from last 44 years in the Australian market. The main products of the company includes electronic products, video games, CDs and DVDs, home appliances, hardware product, ultra HB blu rays etc. the main subsidiary company of JB HI FI is “the good guys” which manages all the operations and the services of the business (Home, 2018). The company is currently managing 244 stores and it is horizontally diversifying the product market t improve the market performance.
KATHMANDU LIMITED:
Kathmandu limited is also an Australian retailing company which is operating its business from last 31years in the Australian market. It is a transaction chain of retail stores in the Australian market which offers the travel, adventures and outdoor equipment and the apparels to its customers. Headquarter of the company is in New Zealand market. The company is currently managing 163 stores and it is horizontally diversifying the product market to improve the market performance (Home, 2018).
Both of these companies have been chosen for the report because of their same industry so that it becomes easier to identify the similarity in their presentation and the recording system.
Owner’s equity:
Owner’s equity item represents the investment done by the owner or the shareholders of the business in the operations of the business. The evaluation on the owner’s equity is important for the shareholders because it plays crucial role in measuring the financial performance and the capital structure of the business (Bhasin, 2013).
Equity items depict the total owner’s equity of a business. The equity item list of Kathmandu limited and JB HI FI are as follows:
|
List of Equity items |
||||||
|
|
JB HI FI |
Kathmandu Limited |
||||
|
AUD in ‘000 |
2017 |
2016 |
Changes |
2017 |
2016 |
Changes |
|
Stockholders’ equity |
||||||
|
Contributed equity |
438700 |
49300 |
789.86% |
200209 |
200191 |
0.01% |
|
Retained earnings |
381600 |
328300 |
16.24% |
149893 |
136033 |
10.19% |
|
Reserves |
33200 |
27100 |
22.51% |
-23002 |
-24541 |
-6.27% |
|
Total stockholder’s equity |
853500 |
404700 |
110.90% |
327100 |
311683 |
4.95% |
(Annual report, 2017)
The table explains about different equity item list which contributes the total amount invested by the shareholder and kept by the business for various reasons. The contributed equity describes the total amount which has been invested by the shareholders in the company against the shares in the profit of the company. The equity position of JBH and Kathmandu limited has been improved by 789.86% and 0.01% from 2016.
Further, the retained earnings are the part of profit of the business which has not been distributed among the shareholders of the business. 16.24% and 1.19% increment has been seen in the retained earnings of JBH and Kathmandu limited respectively. Further, the reserves are the provisions which are maintained by the business against any operational risk of the business (Fan, Gillan and Yu, 2013). The JBH has improved the reserves amount by 22.51% and Kathmandu limited has reduced the level by -6.27%.
The debt and equity position mainly depict about the financial gearing position of the business and the total cost of capital of the business. Through evaluation on the annual report (2017) of both the companies, it has been found that the JB HI FI is holding a great debt amount against the equity level of the business which expresses about higher financial gearing position and lesser cost of the business. Further, the table describes that the debt position of Kathmandu limited is just 13.67% of total equity of the business which expresses about lower financial gearing position and higher cost of the business.
|
Debt and Equity position |
||
|
JB HI FI |
Kathmandu Limited |
|
|
AUD in ‘000 |
2017 |
2017 |
|
Long term debt |
713000 |
44723 |
|
Equity |
853500 |
327100 |
|
Debt / Equity |
83.54% |
13.67% |
(Annual report, 2017)
Cash flow statement, its items and the figures of cash flow statement represent the total cash which either has been paid by the business or received in order to manage and run the business activities. The evaluation on the cash flow statement is important for the stakeholders because it plays crucial role in identifying the cash management capability and the cash conversion cycle of the business (Bowen, Rajgopal and Venkatachalam, 2008).
The cash flow statement items depict the cash management position and the reason behind the changes into the cash level of the business. The cash flow statement item list of Kathmandu limited and JB HI FI are as follows:
Figure 1: CFS of JB HI FI
(Annual report, 2017)
Figure 2: CFS of Kathmandu limited
(Annual report, 2017)
The above images explain about various factors due to which the cash flow position of both the companies has been changed. On the basis of the evaluation on the cash flow statement of both the companies, various changes have been seen. Such as the receipts from the customers, payment to suppliers, income taxes payment, and interest paid and interest received all the items represent about the operational activities of the business. In the case of JBH and Kathmandu limited, all the figures have been improved from 2016. Further, the purchase and sales of PPE, subsidiary purchase etc are the investing activities which describe about the positive changes in Kathmandu limited and negative changes in the JB HI FI. Lastly, the purchase of loan, share issue, borrowings etc has been studied in both the annual report (2017) and recognized that the position of JBH has been improved and the reduction has been seen in the Kathmandu limited.
In terms of evaluation on the cash flow statement of the business, the cash flows of last 3 years of each of the company have been evaluated. The operating activity’s cash flow represents that the 5.95% increment has taken place in the cash inflow position of the company. Though, the investing activities of the business describe about higher cash flow of the business due to payment for business combination. Further, the borrowings have improved the financial cash flows of the business by 652.22%.
|
JB HI FI |
||||
|
AUD in ‘000 |
2017 |
2016 |
2015 |
Changes |
|
Net cash used for operating activities |
190600 |
185100 |
179896 |
5.95% |
|
Net cash used for investing activities |
-885500 |
-52000 |
-44370 |
1895.72% |
|
Net cash provided by (used for) financing activities |
715900 |
-130500 |
-129640 |
-652.22% |
(Annual report, 2017)
Further, the cash flows of last 3 years of Kathmandu limited have been evaluated. The operating activity’s cash flow represents that the 127.07% increment has taken place in the cash inflow position of the company. Though, the investing activities of the business describe about higher cash flow of the business due to payment for business combination. Further, the dividend payment has improved the financial cash flows of the business by 285.17%.
|
Kathmandu Limited |
||||
|
AUD in ‘000 |
2017 |
2016 |
2015 |
Changes |
|
Net cash used for operating activities |
67273 |
69080 |
29627 |
127.07% |
|
Net cash used for investing activities |
-13275 |
-23191 |
-19980 |
-33.56% |
|
Net cash provided by (used for) financing activities |
-57382 |
-40730 |
-14898 |
285.17% |
(Annual report, 2016)
The comparison of both the companies has been done further to measure that whether the changes in both the companies are similar or the internal factors of the company have derived the different changes in both the companies. On the basis of the below given table, it has been recognized that the cash flow from operating activities of JBH and Kathmandu limited is 2.97% and -2.62% which describes better cash level of JBH. Further, the cash flow from financing activities of JBH and Kathmandu limited is -1602.88% and 42.76% which describes better cash management position of Kathmandu limited. Lastly, the study describes that the outflow of JBH has been controlled and the Kathmandu limited’s expenses have been improved in the year of 2017.
|
JB HI FI |
Kathmandu Limited |
|||||
|
AUD in ‘000 |
2017 |
2016 |
Changes |
2017 |
2016 |
Changes |
|
Net cash used for operating activities |
190600 |
185100 |
2.97% |
67273 |
69080 |
-2.62% |
|
Net cash used for investing activities |
-885500 |
-52000 |
1602.88% |
-13275 |
-23191 |
-42.76% |
|
Net cash provided by (used for) financing activities |
715900 |
-130500 |
-648.58% |
-57382 |
-40730 |
40.88% |
(Annual report, 2017)
The similarity in recording the cash flow position of both the companies have helped to compare the cash flow figures of both the companies and evaluate the cash management level of both the companies.
Other comprehensive income statement:
Comprehensive income statement item represents the activities and the events which are not related to the operations of the business. The evaluation on the comprehensive income statement of the business is important in order to measure that how much the profitability level of the business has been affected because of it (Chen, Hu and Xiao, 2012).
The comprehensive income statement items depict the factors and items which affect the profit level but have not been represented in the income statement of the business. The comprehensive income statement item list of Kathmandu limited and JB HI FI are as follows:
Figure 3: Comprehensive income statement of JBH
(Annual report, 2017)
Figure 4: Comprehensive income statement of Kathmandu limited
(Annual report, 2017)
The annual report (2017) of JBH and Kathmandu limited expresses that the profit and loss statement and comprehensive income statement has been represented differently by the companies even though, both the statement represent the profit or loss level of the business. Chen, Hu and Xiao, (2012) has explained into his study that the profit and loss statement of an organization represent those figures which are related to the operations of the company whereas those items which are not related to the activities of the company but still have a impact on the profit position of the business is shown in the comprehensive income statement of the business.
The comprehensive income statement is prepared separately in order to make the clean information to the internal and external stakeholders of the business that how much profit has been generated by the business and how much affect on the profit position of the company has taken place due to the external factors such as changes in the foreign exchange rate.
The comprehensive income statements of both the companies represent the changes into the total comprehensive income from the last year and the impact of the comprehensive income on the total profitability level of the business. On the basis of the below table it has been found that the comprehensive income of JBH has been reduced and Kathmandu limited’s income has been improved from the year of 2016 (Bamber, Jiang Petroni and Wang, 2010).
Further, it has been found that the total profitability level of JBH has been reduced from $ 1,72,40,000 to $ 1,71,20,000 because of the loss in the comprehensive income statement of the company. Additionally, on the basis of the annual report (217) of Kathmandu limited, the total profitability level of company has been improved from $ 33,521,000 to $ 11,246,000 because of the profit in the comprehensive income statement of the company.
|
Comprehensive income statement Items |
||||
|
JB HI FI |
Kathmandu Limited |
|||
|
AUD in ‘000 |
2017 |
2016 |
2017 |
2016 |
|
Profit for the year |
172400 |
152200 |
38039 |
33521 |
|
Other comprehensive income |
||||
|
Movement in cash flow hedge reserve |
-1100 |
100 |
209 |
-15891 |
|
Movement in foreign currency translation reserve |
-100 |
3900 |
209 |
-6384 |
|
Total other comprehensive income |
-1200 |
4000 |
418 |
-22275 |
|
Total profit |
171200 |
156200 |
38457 |
11246 |
(Annual report, 2017)
Bradley (2017) has represented that the performance of a manager in an organization is measured on the basis of the total profit earned by the company and the increment in the total profitability level of the business. Thus the profit must contain only the activities and the transaction related to the business. If other items such as hedging, foreign exchange etc would be added into the profit of the business than it would dilute the measurement base of the company and it would lead towards a wrong decision about the performance of the business. So, it is concluded that the comprehensive income statement item must not be included in the profit position of the business while evaluating the management performance of the company.
The income tax amount which is represented in the income statement is always different from the other recordings of tax expenses in the final statement such as recording in cash flow statement and at the assets and liability side of balance sheet of the company.
The tax expenses of the company represents the below table:
|
Income tax expenses |
||
|
JB HI FI |
Kathmandu Limited |
|
|
AUD in ‘000 |
2016 |
2017 |
|
Income tax expenses |
86800 |
16935 |
(Annual report, 2017)
It explains that the income tax expenses of the business are $ 86,800 and $ 16,935 in JB HI FI and Kathmandu limited.
Effective tax rate is a % which is used to identify and represent that how much amount has been paid by the JBH and Kathmandu limited to the Australian government in a year. The income tax expenses have been divided by the EBT to identify the rate (Egger, Eggert, Keuschnigg and Winner, 2010).
|
Effective tax rate |
||
|
JB HI FI |
Kathmandu Limited |
|
|
AUD in ‘000 |
2016 |
2017 |
|
Income tax expenses |
86800 |
16935 |
|
EBT |
259200 |
54974 |
|
Effective tax rate |
33.49% |
30.81% |
(Annual report, 2017)
It explains that the effective rate of JBH is higher than the effective tax rate of Kathmandu limited.
DTA and DTL of the companies have been discussed further. On the basis of the annual report (2017) of both the companies, it has been found that DTA of both the company is nil and the DTL of the companies are as follows:
|
Deferred tax assets and liabilities |
||
|
JB HI FI |
Kathmandu Limited |
|
|
AUD in ‘000 |
2017 |
2017 |
|
Deferred tax liabilities |
8200 |
34027 |
(Annual report, 2017)
The DTL position in both the companies has taken place due to the payment of the lower tax.
The changed position of DTA and DTL of both the companies has been studied further which are as follows:
|
Changes in Deferred tax assets and liabilities |
||||||
|
JB HI FI |
Kathmandu Limited |
|||||
|
AUD in ‘000 |
2017 |
2016 |
Change |
2017 |
2016 |
Change |
|
Deferred tax assets |
7800 |
|||||
|
Deferred tax liabilities |
8200 |
34027 |
33247 |
2.35% |
(Annual report, 2017)
On the basis of the DTA and DTL position of the companies, it has been recognized that the tax payment of JBH was lower in 2017. Further, in case of Kathmandu limited, it has been recognized that the DTL level of Kathmandu limited has been improved by 2.35%.
Cash tax amount represent the total payment of taxation which has been done by the company in the current year. The amount is calculated on the basis of the total earnings before tax of the company (Bradley, 2017). It has also been recognized that the cash tax amount of the company is $ 70,800 thousand in JB HI FI and $ 16,155 thousand in case of Kathmandu limited. The cash tax amount of JBH is higher.
|
Cash tax amount |
||
|
JB HI FI |
Kathmandu Limited |
|
|
AUD in ‘000 |
2017 |
2017 |
|
Book Income tax expenses |
86800 |
16935 |
|
ADD: Increment in the deferred tax assets |
-7800 |
|
|
Less: Increase in deferred tax liabilities |
8200 |
780 |
|
Cash tax amount |
70800 |
16155 |
(Annual report, 2017)
Cash tax rate represent the total payment of taxation which has been done by the company in the current year on the basis of EBT. It has also been recognized that the cash tax % of JBH and Kathmandu limited is 27.31% and 29.39% respectively.
|
Cash tax rate |
||
|
JB HI FI |
Kathmandu Limited |
|
|
AUD in ‘000 |
2017 |
2017 |
|
Book Income tax expenses |
86800 |
16935 |
|
ADD: Increment in the deferred tax assets |
-7800 |
|
|
Less: Increase in deferred tax liabilities |
8200 |
780 |
|
Cash tax amount |
70800 |
16155 |
|
EBT |
259200 |
54974 |
|
Cash tax arte |
27.31% |
29.39% |
(Annual report, 2017)
Lastly, the study has been performed on the book and cash tax rate of the business. Annual report (2017) of JBH and Kathmandu explains that the book tax rate of the business is 30% and the cash tax rate is 27.31% and 29.39%. The cash tax rate of JBH is lowest.
|
Tax rate changes |
||
|
JB HI FI |
Kathmandu Limited |
|
|
AUD in ‘000 |
2017 |
2017 |
|
Book tax rate |
30% |
30% |
|
Cash tax rate |
27.31% |
29.39% |
(Annual report, 2017)
Conclusion:
On the basis of the evaluation of Kathmandu limited and JB HI FI, it has been recognized that if the same rules and accounting policies are followed in the annual report of the business than it make it easier for the business, shareholder, other stakeholder etc of the company to make a decision and compare the performance of the firm with other firm in the industry. The overall study on both the company’s financial statement explains that the recording and presentation rules and the format of both the companies are similar which makes it easier for the investors and the individuals to evaluate the performance of the company.
References:
Annual Report. 2016. Kathmandu Limited. [Online]. Available at: https://www.annualreports.com/HostedData/AnnualReportArchive/K/ASX_KMD_2016.pdf [accessed 24/9/18].
Annual Report. 2016. Kathmandu Limited. [Online]. Available at: https://www.jbhifi.com.au/Documents/2016%20JB%20Hi-Fi%20Annual%20Report_ASX.pdf [accessed 24/9/18].
Annual Report. 2017. Kathmandu Limited. [Online]. Available at: https://www.kathmanduholdings.com/wp-content/uploads/2012/08/Kathmandu-Annual-Report-2017_online.pdf [accessed 24/9/18].
Annual Report. 2017. Kathmandu Limited. [Online]. Available at: https://www.jbhifi.com.au/Documents/2017%20Annual%20Report.pdf [accessed 24/9/18].
Bamber, L.S., Jiang, J., Petroni, K.R. and Wang, I.Y., 2010. Comprehensive income: Who’s afraid of performance reporting?. The Accounting Review, 85(1), pp.97-126.
Bhasin, M.L., 2013. Corporate accounting scandal at Satyam: A case study of India’s enron. European Journal of Business and Social Sciences, 1(12), pp.25-47.
Bhasin, M.L., 2015. Corporate accounting fraud: A case study of Satyam Computers Limited.
Bowen, R.M., Rajgopal, S. and Venkatachalam, M., 2008. Accounting discretion, corporate governance, and firm performance. Contemporary accounting research, 25(2), pp.351-405.
Bradley, S., 2017. Inattention to Deferred Increases in Tax Bases: How Michigan Home Buyers Are Paying for Assessment Limits. Review of Economics and Statistics, 99(1), pp.53-66.
Chen, C.H., Hu, Y. and Xiao, J.Z., 2012. Corporate accounting scandals in China. Creative Accounting, Fraud and International Accounting Scandals, 2 (5), pp.163-184.
Egger, P., Eggert, W., Keuschnigg, C. and Winner, H., 2010. Corporate taxation, debt financing and foreign-plant ownership. European Economic Review, 54(1), pp.96-107.
Fan, J.P., Gillan, S.L. and Yu, X., 2013. Property rights, R&D spillovers, and corporate accounting transparency in China. Emerging Markets Review, 15, pp.34-56.
Home. 2018. JB HI FI Limited. [Online]. Available at: https://www.jbhifi.com.au/ [accessed 24/9/18].
Home. 2018. Kathmandu Limited. [Online]. Available at: https://www.kathmandu.co.nz/ [accessed 24/9/18].
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