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Assessment task
In the file “Find Your Company” you will find the listed company you have been given for this course. This file will be made available on Friday of Week 4. Complete this assignment for the company you have been given. Please be careful to use the listed company you have been given. Your assignment will not be marked if you use a different company to the one you have been given; and you will be asked to resubmit your assignment using the right company.
Go to the website of your company, by clicking on the URL next to your company in the list of companies in the file “Your Company”. Then go to the Investor Relations section of the website. This section may be called, “Investors”, “Shareholder Information” or similar name.
In this section, go to your firm’s annual reports and save to your computer your firm’s latest annual report. For example, these may be dated 30 June 2015 or 31 March 2016. Do not use your firm’s interim financial statements or their concise financial statements. You are need to do the following tasks:
Please read the financial statements (balance sheet, income statement, statement of changes in owner’s equity, cash flow statement) very carefully. Also please read the relevant footnotes of your firm’s financial statements carefully and include information from these footnotes in your answer. Please remember some aspects of your firm’s treatment of its tax –can be a very complicated area, particularly for some firms.
MY COMPANY NAME IS “ Freedom Insurance Group LTD”; Company ASX code is FIG
Within your firm’s latest annual report
- From your firm’s financial statement, list each item of equity and write your understanding of each item. Discuss any changes in each item of equity for your firm over the past year articulating the reasons for the change.What is your firm’s tax expense in its latest financial statements?
- 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.Comment on deferred tax assets/liabilities that is reported in the balance sheet articulating the possible reasons why they have been recorded.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?
- 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?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?
Assessment marking criteria
- Submitted correct annual report for your company
- Insightful description of each item of your firm’s equity – indicating a degree of understanding of what each item is
- Insightful explanation of changes in each item
- Clear description of your firm’s income tax expense
- Insightful explanation of whether, and if so why, your firms’ income tax expense differs from the corporate tax rate times the accounting income
- Explanation of why the income tax expense shown in the income statement is different from income tax shown in the cash flow statement
- Understanding of deferred tax assets and deferred tax liabilities and why they have changed over the previous year.
Answer:
After evaluating the annual report of Freedom Insurance Group Limited, it is analysed that equity capital of company is accompanied by mainly three parts (Freedom Insurance Group Limited, 2017).
- Contributed equity of business
- Reserve
- Distributable profit of business.
It is observed that contributed capital is the paid up capital which divulges which stakeholders had given to company. Retained earnings or reserve is kept to strengthen the financial position of business (McLaren, Appleyard and Mitchell, 2016).
Retained earnings of company has gone down by AUD $ 923 million as it has invested its reserve in its business with a view to diversify its business. It is evaluated that company has also retained earning with a view to increase the business efficiency.
Answer to question-2The total amount of tax expenses of Freedom Insurance Group Limited in 2016 is AUD $ 2086 million which is 62% higher as compared to last year tax payment. This tax expenses has increased due to the increase in its overall turnover and profit of company.However, Freedom Insurance Group Limited has increased the tax deducabile expenses such as increase in its overall interest expense. It will help Freedom Insurance Group Limited to reduce its tax payment eventually.
- The treatment for computation of the tax payment in financial statement is based ont the tax rules and regulations while, tax rate times is computed on the net profit calculated on the basis of accounting rules and regulations.
- It is evaluated that the main reason for the differences in tax computation is related to recording of revenue and expenses in profit and loss account which are deductible for as per the tax rules and regulations. Deprecation accounting and recording of donation and recording of bed debts amount in financial statement differ as per the accounting an income tax rules AASB-112 (Alesina and Passarelli, 2014).
Answer to question no-4After evaluating the annual report of Freedom Insurance Group Limited, it is considered that deferred tax liabilities of company in 2016 is AUD $ 4475 which is 63% higher as compared to last year data.
Equity (Amount in million) |
2015 |
2016 |
Contributed equity |
8416 |
810 |
Reserve |
688 |
500 |
Retained earning |
7791 |
4769 |
Total equity |
16895 |
6079 |
Particular(AUD $ in million) |
2016 |
2017 |
Income tax expenses |
2086 |
1314 |
Particular (AUD $ million) |
2016 |
2015 |
Deferred tax liabilities |
4475 |
2220 |
Particular(AUD $ in million) |
2016 |
2017 |
Income tax payable |
16 |
– |
References
Ajello, A., 2016. Financial intermediation, investment dynamics, and business cycle fluctuations. The American Economic Review, 106(8), pp.2256-2303.
Alesina, A. and Passarelli, F., 2014. Regulation versus taxation. Journal of Public Economics, 110, pp.147-156.
Bodie, Z., Kane, A. and Marcus, A.J., 2014. Investments, 10e. McGraw-Hill Education.
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.
Dwenger, N. and Steiner, V., 2014. Financial leverage and corporate taxation: Evidence from German corporate tax return data. International tax and public finance, 21(1), pp.1-28.
Dyreng, S.D. and Markle, K.S., 2016. The effect of financial constraints on income shifting by US multinationals. The Accounting Review, 91(6), pp.1601-1627.
Freedom Insurance Group Limited, 2017, annual report, Retrieved on 29th November, 2017.
McLaren, J., Appleyard, T. and Mitchell, F., 2016. The rise and fall of management accounting systems: A case study investigation of EVA. The British Accounting Review, 48(3), pp.341-358.
Mills, A. and Woodford, W., 2015. Company Accounting. Pearson Higher Education AU
Morgan, J., 2016. Corporation tax as a problem of MNC organisational circuits: The case for unitary taxation. The British Journal of Politics and International Relations, 18(2), pp.463-481.
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