Collect the latest annual report of an ASX listed company for the last 2 financial years. Please read the financial statements (balance sheet, income statement, cash flow statement) and notes attached to financial statements on income tax issues very carefully. Please remember some aspects of your firm’s treatment of its tax – can be a very complicated area, particularly for some firms. Based on your understanding of the topic “accounting for income tax” and based on your reading of the collected annual reports, do the following tasks. i Briefly explain the concepts of accounting profit, taxable profit, temporary difference, taxable temporary difference, deductible temporary difference, deferred tax assets and deferred tax liability. ii Briefly explain the recognition criteria of deferred tax assets and deferred tax liability. iii What is your firm’s tax expense in its latest financial statements?
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Collect the latest annual report of an ASX listed company for the last 2 financial years. Please read the financial
statements (
statements on income tax issues very carefully. Please remember some aspects of your firm’s treatment of its
tax – can be a very complicated area, particularly for some firms. Based on your understanding of the topic
“accounting for income tax” and based on your reading of the collected annual reports, do the following tasks.
i Briefly explain the concepts of accounting profit, taxable profit, temporary difference, taxable temporary
difference, deductible temporary difference,
ii Briefly explain the recognition criteria of deferred tax assets and deferred tax liability.
iii What is your firm’s tax expense in its latest financial statements?
iv Is this figure the same as the company tax rate times your firm’s accounting income? Explain why this is,
or is not, the case for your firm highlighting the reasons for differences.
v Identify the deferred tax assets/liabilities that is reported in the balance sheet articulating the possible
reasons why they have been recorded.
vi 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?
vii 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?
viii Briefly explain the concepts of temporary difference and permanent difference. Identify any permanent
differences that your company may have.
ix What do you find interesting, confusing, surprising or difficult to understand about the treatment of tax
in your firm’s financial statements? What new insights, if any, have you gained about how companies
account for income tax as a result of examining your firm’s tax expense in its accounts
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