Tuesday, May 5, 2020

Journal Of Accounting Finance And Economic - MyAssignmenthelp.com

Questions: 1. What is your firms tax expense in its latest financial statements? 2. Is this figure the same as the company tax rate times your firms accounting income? Explain why this is, or is not, the case for your firm. 3. Comment on deferred tax assets/liabilities that is reported in the balance sheet articulating the possible reasons why they have been recorded. 4. Is there any current tax assets or income tax payable recorded by your company? Why is the income tax payable not the same as income tax expense? 5. Is the income tax expense shown in the income statement same as the income tax paid shown in the cash flow statement? If not why is the difference? 6. What do you find interesting, confusing, surprising or difficult to understand about the treatment of tax in your firms financial statements? What new insights, if any, have you gained about how companies account for income tax as a result of examining your firms tax expense in its accounts? Answers: Answer 1: In the balance sheet statement of an organisation, three main items are present and one of them is equity. Elanor Retail Property Fund is not exempted from this item as well. Based on the balance sheet statement of 2017 of the organisation, the major items include issued capital, treasury shares, reserves and retained earnings. Issued capital is taken into account as the equity of the business firms (Armstrong et al. 2015). Issued capital is computed by multiplying the number of outstanding shares with the par value of the shares. The annual report of the organisation states that issued capital has increased from $42,280,000 in 2016 to $55,768,000 in 2017 (Elanorinvestors.com 2018). The next equity item of Elanor Retail Property Fund is reserves. As commented by Atanasov and Black (2016), reserve is a portion of the equity of an organisation, which is taken into account as the additional amount except for basic share capital. The latest annual report of Elanor depicts that its reserves have increased from $13,411,000 in 2016 to $13,487,000 in 2017 (Elanorinvestors.com 2018). The next item in the equity section of the organisation includes retained earnings. It denotes the overall profit and losses of the organisation from the time of its formation decreased by any dividend paid on the part of the shareholders (Graham et al. 2017). According to the annual report, it has been found that the organisation has not experienced any form of retained earnings; instead, it has suffered from accumulated losses. The accumulated losses of the organisation have increased from ($6,968,000) in 2016 to ($7,228,000) in 2017, which denotes that it has more losses in contrast to profits. The final item in the equity section of Elanor is treasury shares. Treasury shares might arise due to buyback of shares or they are not issued in the first place. These shares do not have dividend payments, voting rights and thus, they are excluded from the computations of outstanding shares (Cheng, Ioannou and Serafeim 2014). According to the balance sheet statement of Elanor in 2017, the treasury share value has remained constant at $691,000 in both 2016 and 2017 and hence, it denotes that the organisation has not repurchased shares from the shareholders. Answer 2: In the current era, business organisations often incur various types of expenses like administration expenses, selling expenses and others. Tax expense could be considered as one of them. Moreover, tax expense is taken into account in the form of major liability of the organisations owing to the state, federal and municipal governments of the nation (Christensen et al. 2015). Tax expense is computed by multiplying the suitable business tax with the income before tax after factoring few main items like tax assets, non-deductible items and tax liabilities. In case of Elanor, the tax expense of the organisation has fallen from $927,000 in 2016 to $768,000 in 2017. Despite the increase in profit before income tax, the tax expense of the organisation has been reduced due to reversal of tax provision. Answer 3: It has been identified that the corporate tax rate in Australia is 30% (Damodaran 2016). In case of Elanor Retail Property Fund, the identical rate is applied, which is identified from the annual report of the organisation. Moreover, the profit before income tax is identified as $12,394,000 in 2017 (2016: $5,070,000). In case of application of the above tax rate, the overall tax expense would be arrived at $3,718,200 in 2017. However, the company has taken into account other items in order to calculate the total tax expense. Such items include the following: Entertainment Non-deductible amortisation and depreciation Adjustments of fair value to trust investment property Non-deductible expenditures Proceeds of insurance on plant and equipment Reversal of tax provision By taking into account, the above-depicted items and the domestic tax rate, Elanor has reconciled the tax rate. This has resulted in variation of overall tax expense of the organisation compared to the corporate tax rate times the accounting income of the firm. Answer 4: Deferred tax assets and liabilities are two main concepts related to tax operation of the organisations. Deferred tax assets denote the position, in which the organisations make advance or over tax payments on their financial assets (Dowling 2014). On the contrary, deferred tax liabilities depict a position, in which the difference could be observed in the tax carrying value and profit of the organisation. For Elanor, it could be observed that the organisation has disclosed both deferred tax assets and deferred tax liabilities in its annual report. The deferred tax assets of Elanor have been $2,600,000 in 2017 (2016: $2,079,000), while the deferred tax liabilities of the organisation have been $1,635,000 in 2017 (2016: $1,607,000). By taking into account the accounting norms and regulations pertaining to deferred tax assets and liabilities, some reasons are inherent for reporting deferred tax assets and liabilities. For deferred tax assets, the reason might be the additional payment of depreciation on the part of the organisation because of variation in rate of taxable depreciation and difference. Due to the additional payment related to depreciation, the organisation need not have to incur the excess tax in the upcoming year; hence, it is adjudged as an asset. For deferred tax liabilities, they generally occur because of the temporary differences in profits and thus, the organisation needs to incur lower amount of tax in the existing year. The organisation needs to pay the remaining amount in the upcoming years and thus; they are taken into account in the form of liability. Answer 5: Income tax payable or current tax asset is adjudged as a significant aspect for the business firms. According to the annual report of Elanor, it could be observed that the income tax paid is $631,000 in 2017; however, there is absence of income tax payable in the year 2016. In organisations, it could viewed that there is a variation between income tax expense and income tax payable and some particular reasons could be held accountable for such disparity. The primary reason is the presence of deferred tax assets. There are many examples, in which the organisation incurs additional tax amount in contrast to the tax expenses (Dyreng et al. 2016). Under such condition, the additional amount of tax paid would be adjudged in the form of deferred tax assets, which forms the difference. The next reason is the difference between the norms of tax accounting and the norms of financial accounting. Under such aspect, the instance of depreciation could be mentioned. The variation for depreciation could be viewed under tax accounting and financial accounting for various rates of depreciation (Dyreng et al. 2017). Hence, the amount of final depreciation could be either raised or declined. These are the primary reasons behind the variations between income tax expense an d income tax payable. Answer 6: According to the financial statements of Elanor, the organisation has provided description regarding its tax payments in the income statement and cash flow statement. However, it could be found that it has published two distinct set of amounts in both the above-depicted statements. In case of Elanor, the tax expense of the organisation has been $768,000 in 2017 and $927,000 in 2016. On the other hand, the income tax payable of the organisation has been identified as $631,000 in 2017; however, there is no such payment in 2016. There are some particular reasons for this difference regarding income tax payment. In accordance with the income statement, the organisation depicts the entire amount of tax expense by charging the tax rate of 30% on profit before income tax. However, the case is not similar for the cash flow statement. Under such cash flow statement section, there is different treatment related to some items of the income statement. It signifies that various changes occur in current assets and liabilities of the organisations. For Elanor, the income tax payment is taken into account as current asset. In the cash flow statement, some minimisation in the items of income tax has been made depicting the utilisation of cash. This signifies that some items of tax expense have been eliminated before they are considered in the cash flow statement (Goh et al. 2016). Due to these reasons, the variation in tax expenses could be viewed in income statement and cash flow statement. Answer 7: After careful evaluation of tax treatment in the annual report of Elanor, it could be stated that no confusing or surprising element is inherent in the treatments of tax. The organisation has carried out all its tax treatment by adhering to the norms and regulations of the Taxation Law of Australia. Moreover, it has provided all the justifications and descriptions of different taxation factors like deferred tax assets and liabilities, tax rate, current tax assets and others. However, some interesting factors have been found in the tax treatment of Elanor Retail Property Fund. The significant factor is the description of the organisation regarding the variation between overall tax expenses. Moreover, it has provided descriptions regarding the primary factors accountable for differences in tax expense. Another significant factor is the variation in tax payment in income statement and cash flow statement. All such factors are useful in improving the understanding and knowledge in taxati on of the organisation. From this evaluation, both insight and knowledge could be obtained about the tax treatment of Elanor Retail Property Fund. References: Armstrong, C.S., Blouin, J.L., Jagolinzer, A.D. and Larcker, D.F., 2015. Corporate governance, incentives, and tax avoidance.Journal of Accounting and Economics,60(1), pp.1-17. Atanasov, V. and Black, B., 2016. Shock-based causal inference in corporate finance and accounting research. Cheng, B., Ioannou, I. and Serafeim, G., 2014. Corporate social responsibility and access to finance.Strategic Management Journal,35(1), pp.1-23. Christensen, D.M., Dhaliwal, D.S., Boivie, S. and Graffin, S.D., 2015. Top management conservatism and corporate risk strategies: Evidence from managers' personal political orientation and corporate tax avoidance.Strategic Management Journal,36(12), pp.1918-1938. Damodaran, A., 2016.Damodaran on valuation: security analysis for investment and corporate finance(Vol. 324). John Wiley Sons. Dowling, G.R., 2014. The curious case of corporate tax avoidance: Is it socially irresponsible?.Journal of Business Ethics,124(1), pp.173-184. Dyreng, S., Hanlon, M., Maydew, E.L. and Thornock, J.R., 2016. Changes in corporate effective tax rates over the past twenty-five years. Dyreng, S.D., Hanlon, M., Maydew, E.L. and Thornock, J.R., 2017. Changes in corporate effective tax rates over the past 25 years.Journal of Financial Economics,124(3), pp.441-463. Elanorinvestors.com. (2018).[online] Available at: https://www.elanorinvestors.com/images/ENNAR2017Report.pdf [Accessed 5 Jan. 2018]. Goh, B.W., Lee, J., Lim, C.Y. and Shevlin, T., 2016. The effect of corporate tax avoidance on the cost of equity.The Accounting Review,91(6), pp.1647-1670. 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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