Company Is Required To Follow Guidelines -Myassignmenthelp.Com

Question: Discuss About The Company Is Required To Follow Guidelines? Answer: Introducation The annual report of the company is the report which represents the detailed financial statements of the company for that particular period and along with that the directors report and the independent auditors report is also included in the annual report. Through this report, the financial report of the company has been analyzed. The company that has been chosen for the purpose of the analysis is the Blue Sky Alternative Investment Limited. The main body of the report has been divided into seven parts. The first part is dealt with the composition of the equity of the company. The second part deals with the income tax expense for the current year as stated in the financial statements. The third part deals with the comparison of tax expense with the net profit of the company. The fourth part deals with the deferred tax assets and the deferred tax liabilities of the company. The fifth part deals with the recording of income tax provision in the financial statements and how the same is d ifferent with income tax expense. The sixth part deals with the analysis of the tax expense as shown in the cash flow statement and the last part deals with the overall analysis of the equity and tax expense of the company. The report is then ended up with the conclusion and recommendation. The consolidated statement of changes in equity has provided the composition of the equity. It consists of four major parts. These are as follows: Contributed Equity It is that part of equity which represents the amount that has been received from the shareholders of the company in lieu of the shares issued to them. Reserves It consists of that part of profits which are available for use for the specified purpose. For instance, employee shares option reserve, redemption reserve, etc. Accumulated Profits It consists of the every years balance of the profit that has been accumulated and is available for use for general purpose. Non Controlling interest It represents that portion of the share in the company which is not sufficiently large and is only regarded as the measure of control. There have been changes observed over the past year. These are Contributed equity has been increased by $1,002,000 due to the issue of shares made during the year. Reserve has been increased due to the creation of employees share option reserve. Accumulated profit has been increased by $20,634,000 being the profit for the year and has been decreased by $10,783,000 being the dividend paid by the company during the year. At the end the accumulated profit has been achieved at $26,664,000. Non Controlling interest has been increased by $51,000 as part of the profit of the year and then decreased by disposition of non controlling interest amounting to $12,322,000 and by dividends amounting to $5,672,000 and at the end the non controlling interest is negative $293,000 (Company Official Website, 2017). The current income tax expense as reported by the company in the financial statements of the company is $4,771,000. The same has been reported in Note number nine of the financial statements of the company. As per the accounting policy of the company, current income tax expense is the tax payable on that periods taxable income. The taxable income is calculated by applying the provisions of the income tax law. As per the income tax law, some additions were made and accordingly the taxable income is arrived. On that taxable income, the tax is calculated by multiplying with the applicable Australian taxation rate. As per the consolidated statement of profit and loss account, the income tax expense consists of the current income tax and the amount of deferred tax. The total tax expense is $9,043 but the related current tax expense that has been included in that amount is $4,771,000. The screen shot of the same is given in Appendix (Company Official Website, 2017): No, the tax expense as reported in the financial statements of the company namely consolidated statement of profit and loss will not be equivalent to the tax expense so arrived after multiplying the accounting income with the Australian taxation rate applicable for the year ending 30th of June 2017. The same has been depicted with the reconciliation statement that has been prepared and made available for the purpose of analysis at note number nine of the financial statements of the company. The note number nine shows that there have been tax effects amounts which are nondeductible and taxable which has been included in the calculation of the current tax expense. The reconciliation statements have been produced below so as to check and confirm the reason for the difference between the two Tax Expenses Particulars Amount in $000 Profit before income tax 29,728 Tax at the Australian tax rate of 30% 8,918 Tax effect deductible/(taxable) Franked distribution (895) Non-deductible 148 Non-assessable income 113 Deferred tax balances not brought to account (661) Foreign Tax Rate Effect 1,420 Expense - Income Tax 9,043 Stated in Consolidated Statement 9,043 (Company Official Website, 2017) Because of the above non deductible and tax effects, there is the difference between the income tax as reported in the financial statements and the tax expense so calculated by applying the income tax rate to profit before tax. As per the accounting policy of the company, the company has to mandatorily report the deferred tax assets and liabilities in the balance sheet and accordingly charge the deferred tax expense or deferred tax income in the consolidated statement of the profit and loss. Following are the deferred tax asset and liabilities reported in the financial statement of the company: Deferred Tax Asset set off against deferred tax liability - $8,584,000 Deferred Tax Liability before set off - $19,459,000 and after set off - $10,875,000 (Company Official Website, 2017). The deferred tax asset and liability is created only when there are temporary differences. Deferred tax assets are recognized only when there is the probable certainty that the company will have the taxable income in the coming future years which will be able to set off the deferred tax assets so created. The carrying value of the deferred tax assets is evaluated at the end of the each year and accordingly the additions or deletions are made. The deferred tax liabilities are recognized in all the cases except the areas which involves the investments in subsidiaries, joint ventures and in case any tax or liability arises from the recognition of the goodwill individually (AASB, 2012). Both the deferred tax assets and liabilities can be offset in case it is legally enforceable and pertains to the same tax authority. Yes, the company has made the provision for income tax and mentioned as income tax payable amounting to $1,345,000. Yes, the company has recorded the current assets for the financial year ending 30th of June 2017 amounting to $33,200,000. The company has off set the deferred tax assets with the deferred tax liability amounting to $8954 because of the reason that the offset is allowable as they belongs to the same authority (Company Official Website, 2017). The difference between the current tax expense and the income tax provision is that the former includes the tax effect on the temporary differences whereas the latter only includes the tax payable on the income. No the income tax expense shown in the consolidated income statement and the income tax expense shown in the cash flow statement will not be the same. It is because of the following reasons: The tax expense shown in the consolidated statement of profit and loss account includes not only the tax expense but also the tax effects on the temporary differences. Thus it includes the deferred tax expense. Cash flow statement represents the actual inflow of cash and outflow of cash that has occurred during the period. It does not take into account the accruals. The tax expense shown in the consolidated cash flow statement will be the amount of tax which has been paid by the company during the period under consideration for which the financial statements have been prepared. After analyzing the tax expense in detail with the understanding of the deferred tax assets and the deferred tax liabilities, I have found the analysis of tax expense very interesting and easy. The companys financial statements have given the way as to how to deal with the tax expense related in different scenarios. Like in the profit and loss tax expense is different and under the current liabilities the amount of tax expense gets differs which has enable me to understand the different aspects of the tax expense in detail. Secondly the reconciliation has cleared the doubt on the tax on the accounting income as mentioned in the income tax expense reconciliation statement. Conclusion The annual report is mainly presented by the companies to the shareholders and other stakeholders of the company so that every potential investor and the existing investor can have the knowledge as to how the company is working and how far the company has ensured the transparency in its disclosure of the financial statements. The main focus of the report has been on the equity and the tax expense including the deferred tax expense. To conclude the report, it is obvious that the company is required to follow the guidelines of the accounting standards along with the Australian taxation law and accordingly shall make the best possible disclosure wherever possible. As per the analysis of the financial statements, the recommendation will be that more transparency shall be ensured in the financial statements so that every common layman can understand each and every aspect. References AASB, (2012), Income Taxes, retrieved from https://www.aasb.gov.au/admin/file/content105/c9/AASB112_07-04_COMPsep11_07-12.pdf accessed on 24/01/2018. Company Official Website, (2017), Annual report, retrieved from blueskyfunds.com.au/us/ accessed on 24/01/2018.