Financial Statement Analysis And Tax Provisions Of JB Hi-Fi Company

Analysis of the Cash flow statement

This report emphasises upon the financial statement analysis, deferred tax payment and the recording of the tax provisions of the JB Hi- Fi Company. With the ramified economic changes, government has been changing the taxation rules and regulation throughout the time to make the tax implication better and effective on the corporations. In this report, JB Hi- Fi Company has been taken to prepare this report. This company has been running its business on international level for selling electronic goods and services (JB HI-FI, 2017). 

Cash flow statement is accompanied with the flow of cash in the business irrespective of the fact whether it belongs to present year or not. The cash flow statement represents the flow of cash in its three main activities named investing, financial, operating activities.

The non-cash items are being added in the operating activities which have increased to AUD $ 191 million in 2017 which is AUD $ 34 million as compared to last five year data. It is reflected that company has increased the depreciation amount and increased operating expenses (JB HI-FI, 2017).

The cash outflow shown by company in its investing activities is AUD $ 886 million which arise due to its cash payment to buy new machineries and assets (JB HI-FI, 2017). 

The financial activities of the JB Hi-Fi Company has shown the positive cash inflow of AUD $ 396 in 2017 which is increased due to the investment made by the investors in buying the capital of company.

The cash dividend paid by JB Hi-Fi company is AUD $ 119 million which is 10% higher as compare to last year data.

After analysing all the details, it could be inferred that free cash flow of company has increased to AUD $ 21 million since last five years. JB Hi-Fi Company has positive cash inflow in its business which reflects the positive business outcomes in near future (Ho, 2017).

JB HI FI LTD  (JBH) Statement of  CASH FLOW
Fiscal year ends in June. AUD in millions except per share data.	2017-06	2016-06	2015-06	2014-06	2013-06
Net cash provided by operating activities	191	185	180	41	156
Net cash used for investing activities	-886	-52	-44	-38	-38
Net cash provided by (used for) financing activities	716	-131	-130	-28	-91
Free cash flow	142	133	137	5	121

The free cash flow is accompanied with the all the addition and subtraction of the cash in the business due to the changes in the flow of operating activities. The free cash flow of JB Hi-Fi Company is AUD 142 million which is too high and shows that company has positive flow of capital in its business (Watson, 2017).

There are several items have been recorded in the income statement of the JB Hi-Fi Company such as revenue, cost of capital, gross profit, operating expenses and all the expense and income which are recorded as revenue nature (Watson, 2017).

JB HI FI LTD  (JBH) Cash Flow Flag INCOME STATEMENT
Fiscal year ends in June. AUD in millions except per share data.	2017-06	2016-06	2015-06	2014-06	2013-06
Revenue	5628	3954	3652	3484	3308
Cost of revenue	4398	3089	2854	2745	2610
Gross profit	1230	865	798	739	699
Operating expenses
Sales, General and administrative	1434	1006	931	884	839
Other operating expenses	-472	-361	-334	-336	-318
Total operating expenses	963	644	597	548	521
Operating income	268	221	201	191	178
Interest Expense	11	4	6	9	10
Other income (expense)	2	1	1	0	1
Income before income taxes	259	218	196	183	168
Provision for income taxes	87	66	59	54	51

4. The provision for the doubtful debts, provision for the tax and all the other items which cannot be recorded in the cash are not shown the cash flow statement but adjusted in the income statement of company (JB HI-FI, 2017).

As per the perception of me, I have understood that only those items which are related to the present year are recorded in the income statement of company. It is observed that cash flow statement covers all the items recording irrespective of the fact whether it belongs to present year or not. On the other hand, income statement shows the income and expenses related to the present year with a view to identity the true and fair net profit of company (JB HI-FI, 2017). 

Comparative analysis of the all three main flow of activities

5. Income statement is prepared with a view to identify the actual profit of the company in the particuarl year. It is acomapenid with the details such as  as revenue, cost of capital, gross profit, operating expenses and all the expense and income which are recorded as revenue nature. All the advance payment and outstanding payment made in the current year will be subtracted from its heading shown in the income statement of company.   

6. Each and every company needs to pay tax to government. It is the amount of liabilities or tax payment which company needs to pay as their moral responsibilities to government on their earning. The amount of tax payment by JB Hi-Fi Company is AUD $ 86.8 million in 2016 which decreased to AUD $ 65.65 million in 2017 (JB HI-FI, 2017).

Particular(AUD $ in million)	2016	2017
Income tax expenses	86.8	65.6

However, with the increasing tax expenses, company has increased its interest expenses which will eventually reduce the tax implication on company (JB HI-FI, 2017).

7. After analysing all the details shown in the annual report of company and AASB 112 taxation rules and regulation for the tax implication on companies, it could be inferred that the tax payment made by company is not equal to the computed tax rate times on the accounting profit of company.

Explain, why this is with reason

 It is analysed that JB Hi-Fi Company has paid the income tax AUD $ 65.6 million in 2017 which includes all the tax payment such as deferred tax and current tax (Obinson, Stomberg, and Towery, 2015).

The company’s tax rate times expenses would be Accounting income * 30% tax rates.

It would be around 259*30%.  

The amount of tax should be 77.7 million.  

• The treatment of tax recording in the income statement varies as per the accounting rules and regulation and AASB 112 income tax standards (Towery, 2017).
• The tax payment shown in the profit and loss account is computed by using the proper taxation rules and manual calculation is done on the basis of company’s tax rate times’ expense and accounting rules.
• There are main two reasons of the differences between the tax amount shown in the profit and loss and manual calculation

1. Revenue and expense recorded by the accounting rules and regulations may not be allowed as per the income tax rules and standard AASB 112.
2. The recording of the bad debts, interest charged, and deduction charged for the charity may not be allowed by the income tax rules and standards (Brigham, and Ehrhardt, 2013).

8. The deferred tax liabilities shown in the balance sheet is AUD $ 8.2 million. It is evaluated that deferred tax liabilities is recognized and carried forward to the extent to which it could be resonbly charged to the books of accounts of company (Watson, 2017).

The JB Hi-Fi Company has recorded the deferred tax liabilities in its balance sheet.

The treatment of the deferred tax assets and libiliteis recorded in the balance sheet of the company (Bradley, 2017).

If company paid higher tax as per the AASB 112 in comparison with the tax computed as per the accounting rules and standards then the same additional amount would be recorded as deferred tax assets.

If company charges less tax as per the AASB 112 in comparison with the tax computed as per the accounting rules and standards then the less amount would be recorded as deferred tax liabilities (JB HI-FI, 2017).

JB Hi-Fi Company has recorded deferred tax liabilities. It shows that company has paid higher tax to government (Ho, 2017).

Particular (AUD $ million)	2017	2016
Deferred tax liabilities	8.2	0

9. Current tax payment and current tax payable by the JB Hi-Fi Company

The current tax payable recorded in the books of accounts of company is AUD $ 4.9 million in 2016 which have reduced and resulted to AUD $ 9 million in 2017 (JB HI-FI, 2017).

Items reported in the other comprehensive income statement

The income tax payment shown in the income statement is the amount of tax implication which was paid by JB Hi-Fi Company on its profit as per the income tax rules and AASB 112 (Gorry, et al., 2017).

Particular(AUD $ in million)	2016	2017
Income tax payable	4.9	9

Income tax payment differ from the income tax payable 

There are several reasons for the difference between the income tax payment amount show in the income statement of company and income tax payable shown in the liabilities side of the balance sheet (Ladas, Negkakis, and Samara, 2017).

Nature- Income tax payment amount show in the income statement of company is of revenue in nature. On the other hand, income tax payable shown in the liabilities side of the balance sheet.

Payment- income tax payment covers the tax payment of Company related for the present year. On the other hand, income tax payable is recorded as cumulative taxable libiliteis of company (Landoni, and Zeldes, 2017).

10. The cash flow statement covers all the inflow and outflow of cash in the present year irrespective of the fact that whether it belongs to the current year or not.

The cash flow statement shown the income tax payment of $98.5 million which covers entire tax payment in present year irrespective of the fact that whether it belongs to the current year or not (Kim, 2017).

The recorded income tax in the income statement is related to the current year tax implication which is charged against profit to identify the true and fair of the profit earned by JB Hi-Fi Company (Ladas, Negkakis, and Samara2017).

Reason

The main reason of the difference between the amount shown in the cash flow statement for the tax and the amount charged  in the income statement is related to the current year tax implication is based on the recording of the nature of transaction in the separate books of accounts for which they are prepared.  

11. Treatment of the tax amount recorded in the books of account of JB HI Fi Company

Interesting thing

The tax payment shown in the income statement may be changed with the changes in the taxation rules and standards (Morris, 2017).

It may be hard for the organization to determine the right amount of cash flow for the income tax which company need to make in the assessment year.

Surprising thing

The surprising thing about the recording of the tax in the books of accounts is related to its booking entries. JB Hi-Fi Company cannot have deferred tax assets and deferred tax liabilities in the books of accounts at the same time. It may result to conflict as per the accounting rules if recorded (Larson, Lewis, and Spilker, 2017).

Difficulty in recorded the entire tax amount

The main difficulty in the recording of the entire tax arise when company has high amount of tax payment and at the same time company needs to set off its deferred tax liabilities in its books of accounts (Eberhartinger, Genest, and Lee, 2017).

Conclusion 

After analysing all the details and deferred tax recording of the JB Hi-Fi Company, it could be inferred that company has complied with the all the domestic and international rules for the tax payment. It is inferred that if in case accounting rules and standards conflict with the rules and regulation of the AASB 112 then in that case the computation of the tax implication will be made as per the income tax rules and regulation.

References

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.

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

Eberhartinger, E., Genest, N. and Lee, S., 2017. Practitioners’ Judgment and Deferred Tax Disclosure: A Case for Materiality.

Gorry, A., Hassett, K.A., Hubbard, R.G. and Mathur, A., 2017. The response of deferred executive compensation to changes in tax rates. Journal of Public Economics, 151, pp.28-40.

Ho, A.T., 2017. Tax-deferred saving accounts: Heterogeneity and policy reforms. European Economic Review, 97, pp.26-41.

JB HI-FI, 2017., Annual report., [Online]., Available from https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_JBH_2016.pdf  [Accessed 14th May, 2018].

Kim, J.H., 2017. What Really Determines the Information Content of Tax Expense and Deferred Tax?. ?????, 42(2), pp.1-44.

Ladas, A.C., Negkakis, C.I. and Samara, A.D., 2017. Accounting quality deferred tax and risk in the banking industry. International Journal of Banking, Accounting and Finance, 8(1), pp.1-19.

Ladas, A.C., Negkakis, C.I. and Samara, A.D., 2017. Accounting quality deferred tax and risk in the banking industry. International Journal of Banking, Accounting and Finance, 8(1), pp.1-19.

Landoni, M. and Zeldes, S.P., 2017. Should the government be paying investment fees on $3 trillion of tax-deferred retirement assets?

Larson, M.P., Lewis, T.K. and Spilker, B.C., 2017. A Case Integrating Financial and Tax Accounting Using the Balance Sheet Approach to Account for Income Taxes. Issues in Accounting Education, 32(4), pp.41-49.

Morris, J.L., 2017. Classification of Deferred Tax Assets and Deferred Tax Liabilities: An Evaluation of FASB’s Attempt at Standards Simplication. Journal of Accounting and Finance, 17(8), pp.198-208.

Robinson, L.A., Stomberg, B. and Towery, E.M., 2015. One size does not fit all: How the uniform rules of FIN 48 affect the relevance of income tax accounting. The Accounting Review, 91(4), pp.1195-1217.

Towery, E.M., 2017. Unintended consequences of linking tax return disclosures to financial reporting for income taxes: Evidence from Schedule UTP. The Accounting Review, 92(5), pp.201-226.

Watson, L. (2017). Discussion of’Does the Deferred Tax Asset Valuation Allowance Signal Firm Creditworthiness?’.