The company whether it is the small sized or medium sized or the large sized, it shall be required to present the financial statements in the manner as defined by the relevant statutes and the applicable laws and regulations. These are required to be presented not only for the benefit of the stakeholders and the users but also the benefit of the company as the better presented financial statements will create the image of the company. In order to proceed with the study, the company that has been selected out of the ASX 100 listed companies is the Woolworths Limited.
The study has been started with the short description about the nature of the company and followed by the analysis of the cash flow statement detailing each and every item reported therein and making an analysis as well as the evaluation as to how the changes in cash and cash equivalents have been made for the last three years and due to this the annual reports of the company for the earlier three years have been considered beginning from 2015.
After analyzing the cash flow statement other statement has been analysed that is an extension of the statement of the profit and loss account and is known as the statement of the other comprehensive income. The reported heads of the statement has been analysed and discussed as to why it has not been the part of the statement of the profit and loss. At the last the company’s income tax has been analysed in detail. Under this, the deferred tax assets, deferred tax liabilities, income tax expense, income tax paid and income tax payable have been discussed with regard to its accounting treatment and the difference between the income tax paid and income tax payable. The report has then has the concluding paragraph and ended with the recommendation and the proper references.
DESCRIPTION OF COMPANY
Woolworths Limited has been chosen for the purpose of making the analysis in this study. The company is based in Australia and its headquarters are also located in Australia. The company has its wide operations across Australia and New Zealand. The company is engaged into the retail sector and provides all the products and the services that are required by every household. It operates the series of the supermarket chains across Australia and New Zealand and is also regarded as one of the largest company in the retail sector. For the purpose of achieving the objectives of this report, the annual reports of the company have been downloaded from the website of the company from year of 2015 to the year of 2017.
CFS – CASH FLOW STATEMENT
At first, the statement of the cash flows has been analysed. It describes how much cash has been generated by the company during the year. For having the clear vision the accounting standards have prescribed three heads under which the company can have the detail of the reasons for increase or decrease in the cash flow statement. In respect of the following, the same have been analysed:
i) List of items Reported
The items reported in the statement have been bifurcated into three activities – operating, investing and financing and below are the items reported therein:
ii) Analysis and Evaluation – Three years
Apart for the analysis of the each reported item, the overall performance of the company has been analysed and evaluated with respect to the cash generated at each activity level which are operating, investing and activity.
S. No.
Particulars
2017
2016
2015
1
Operating
3122
2357
3345
2
Investing
(1432)
(1266)
(1335)
3
Financing
(1729)
(1475)
(1610)
4
Surplus / (Deficit)
(39)
(384)
400
It has been evaluated from the above table that the cash flows from the operating activity has been fluctuating because of the change in the amount of income tax paid and also the amount that is received from the customers and paid to the suppliers has been identified as variable in nature.
It has been further evaluated that the investing function has bought the decline in cash flows majorly because of the acquisition of the assets for the company.
Similarly, the financing function has bought the negative cash flow because of amount paid for borrowings. (Taylor, 2010).
Therefore, the overall impact in the cash flow statement will be that there will be negative cash flows.
OCI – OTHER COMPREHENSIVE INCOME STATEMENT
Along with the cash flow statement, other statement is also the major statement and is known by the name – statement of other comprehensive income. It is regarded as an extension of the statement of the profit and loss (Chambers, 2011).
iii) List of Reported Items
iv) Description
v) Not Reported in Income Statement
These items are required to be disclosed in this statement as per the requirement of the IFRS and also it will be classified to be mentioned in the statement of the profit and loss account and will be transferred as and when the gain or loss will arise.
INCOME TAX – AN ANALYSIS AND UNDERSTANDING
vi) Company’s Tax Expense
Yes, the company has reported the income tax expense and accordingly the amount of the income tax expense is 837 million dollars in the year of 2017. It includes the amount of the current tax and the deferred tax expense. (Woolworths Limited, 2017).
vii) Company’s Tax Rate Times your Accounting Income
The income tax expense is calculated by multiplying the amount of the tax rate with the taxable income and not the accounting income, therefore, the tax rate if multiplied by the accounting income then the tax expense will not be the same. This has happened majorly because the tax is paid on the taxable income and not the accounting income and for calculating the taxable income, the accounting income is adjusted with the timing differences and the inadmissible items which are mentioned in the Income Tax Act. Few differences are impairment, inadmissible expense and etc.
viii) Reporting of Deferred Tax Assets and Liabilities
Deferred Tax Assets have been reported with the amount of 372.39 million dollar. It is created so as to nullify the amount of tax as per taxable income and the amount of tax as per accounting income. The major reasons for the presence are:
ix) Reporting of Income tax Payable and Difference from Income Tax Expense
Income tax payable has been disclosed and the amount of paid amount and the payable amount differs from the fact that the expense amount includes the deferred tax also. (Laux, 2013).
x) Difference between Expense and Paid for Income Tax
As mentioned, expense includes the deferred tax also, therefore the expense amount and the paid amount will not match. (Manzon, G.B. and Plesko, 2012).
xi) Insights for Company’s Income Tax Disclosure
It has been found very interesting and it is worth to mention that the disclosure made by the company will enable the users to understand the effect of the income tax expense in the financial reporting.
CONCLUSION AND RECOMMENDATION
The report has provided the relevant facts and figures and will help the users to have the decision in an efficient and effective manner.
The recommendation is to prepare the other comprehensive income statement in the true and fair manner as the same will affect the reported profits of the company.
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
Chambers, D.J., 2011. Comprehensive income reporting: FASB decides location matters. The CPA Journal, 81(9), p.22.
Fraser, L.M., Ormiston, A. and Fraser, L.M., 2010. Understanding financial statements Pearson
Harrington, C., Smith, W. and Trippeer, D., 2012,Deferred tax assets and liabilities: tax benefits, obligations and corporate debt policy. Journal of Finance and Accountancy, 11, p.1
Laux, R.C., 2013. The association between deferred tax assets and liabilities and future tax payments The Accounting Review, 88(4), pp.1357-1383
Manzon Jr, G.B. and Plesko, G.A., 2012. The relation between financial and tax reporting measures of income Tax L. Rev., 55, p.175
Taylor, M., 2010, Financial statement analysis, pp 13-20
Woolworths Limited (2016), Annual Report -2016 .
Woolworths Limited (2017), Annual Report -2017 .
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