This is a solution of Corporate Accounting Assignment in which we discuss Corporate Accounting can help your company cope with aging systems and limited resources that can lead to fragmented Corporate Accounting solutions.
In order to do so, the annual reports of the individual firms have been obtained followed by a detailed analysis of the financial statements presented in them.
The report contains the analysis of the major financial statements of BC Iron Ltd and Boral Ltd and their notes to financial statements. It has also helped in understanding the various accounting treatments related to taxation.
(A) A brief introduction of the companies chosen and an overview of what has been discussed in this assignment
Hence it is necessary for all companies to perform corporate accounting. The company has several projects such as the Iron Valley and the Buckland project.
Boral Ltd, on the other hand, is another Australian company selling construction and materials for buildings with more approximately 15994 employees and 700 operational sites (Boral.com, 2018). The other comprehensive income statement and the financial statements of BC Iron Ltd and Boral Ltd along with interpreting the constituents in them.
(B) Owners equity
(i) From your companies’ financial statements, list each item of equity and write your understanding of each item
The statement of financial position of a company consists of its ownership interest breakdown and this is called equity (Geske, Subrahmanyam & Zhou, 2014).
Hence the contributed equity or the issued capital in the equity section of a company refers to the amount of equity held in a company from the number of shares, which the company had issued to public (Baker & Xuan, 2016).
(ii) Provide a comparative analysis of the debt and equity position of the two firms that have been selected.
From the comparison and analysis of the debt and equity position of a firm, its overall financial stability and financing methods can be evaluated. Hence the debt and equity positions of BC Iron Ltd and Boral Ltd have been compared below –
(C) Cash flows statement
(iii) From the financial statement of your chosen companies, list each item reported in the cash flows statement
The following points show the items listed in cash flows statements of BC Iron Ltd and Boral Ltd along with their respective understandings, changes and the possible reasons for changes –
- Net cash used in operating activities – Changes taking place in the net cash balance of a firm because of day-to-day operational activities is called net cash used in operating activities (Miao, Teoh & Zhu, 2016). However, Boral Ltd has recorded payment to employees and suppliers, dividend and interest receipt, tax and borrowings paid and acquisition, restricting or integration expenses under this cash flow category (Boral.com, 2018). Increases and decreases can be noticed in these items in BC Iron Ltd and Boral Ltd respectively, the amounts of which have been stated in the next part (Bciminerals.com.au & Boral.com, 2018). These changes might have taken place due to the enhancement or delays in debtor and creditor payments and tax payments.
- Net cash used in investing activities – Changes taking place in the net cash balance of a firm because of investing activities such as buying and selling assets is called net cash used in operating activities (Lewellen & Lewellen, 2016). However, this category in Boral Ltd has several items such as intangibles, plant, equipments, and property, cash from acquisition, repayment of loan, and others (Boral.com, 2018).
(iv) Provide a comparative analysis of your companies’ three broad categories of cash flows
The following part shows the comparative analysis done for BC Iron Ltd and Boral Ltd’s cash flows –
(v) Also provide a comparative analysis of the two companies that you have selected explaining the insights that you can get from the comparative analysis.(Source: Bciminerals.com.au & Boral.com, 2018)
Since the comparative analysis of BC Iron Ltd and Boral Ltd’s cash flow statement and the three broad categories show that the net cash used in operating activities of the firm have increased by $44634000 and -$5 millions respectively (Bciminerals.com.au & Boral.com, 2018). On the other hand, the net cash used in investing activities of BC Iron Ltd show a decrease by $15571000 from 2015 to 2017 while that of Boral Ltd indicate decrease by $3675 million (Bciminerals.com.au & Boral.com, 2018). Therefore the net cash used in financing activities of both BC Iron Ltd and Boral Ltd have improved over the last two years, with an amount of $95013000 and $3358.60 million respectively (Bciminerals.com.au & Boral.com, 2018).
(vi) What items have been reported in the other comprehensive income statement for each company?
The financial statement of a company in which the gains and losses that it has earned during a period from non-operational sources
(Source: Boral.com, 2018)
(vii) Why have these items not been reported in Income Statement/Profit and Loss Statements?
Hence the other comprehensive income statement of any company comprises of items, which are not be recorded in its income statement, as such items neither have any impact on net income or retained earnings of any company (Graham & Lin, 2018).
(viii) Provide a comparative analysis of the items shown in the other comprehensive income statement section for the two companies.
Since the income statement of a company decides profit attributable to shareholders based on net income but these items will not be having any effect on the net profit of both the companies.(Source: Bciminerals.com.au & Boral.com, 2018)
(ix) Should other comprehensive income be included in evaluating the performance of managers of the company?
Since managers or any high-level executive, do not have any command on the items that are mentioned under the other comprehensive income statement, this statement should not be considered for evaluating performance of managers (Gazzola & Amelio, 2014).
(E) Accounting for corporate income tax
(x) What are the tax expenses shown in the latest financial statements of the two companies that you have selected?
However, during the year 2016, the company had paid $43862000 as income tax expense (Bciminerals.com.au, 2018).
(xi) Calculate the effective tax rate for both companies that you have selected. Which one of the companies has the higher effective tax rate?
According to Fairfield & Jorratt De Luis (2016), the average rate as per which the earned income or the pre-tax income of a company are taxed is known as its effective tax rate.
(xii) Comment on deferred tax assets/liabilities that are reported in the balance sheet articulating the possible reasons why they have been recorded.
According to Yasseen, Jansen & Small (2016), one of the most important components to be included in the balance sheets of a company are deferred tax assets and deferred tax liabilities. However, BC Iron Ltd’s balance sheet indicates that the company neither has deferred tax asset nor has deferred tax liabilities (Bciminerals.com.au, 2018). Boral Ltd also does not have any deferred tax liabilities.
(xiii) Was there any increase or decrease in the deferred tax assets or in the deferred tax liability reported by each of your selected companies?
Through the comparison of the BC Iron Ltd and Boral Ltd’s financial position statements, one can be determining that that the company BC Iron Ltd neither has deferred tax asset nor has deferred tax liabilities (Bciminerals.com.au, 2018). As a result, there is no scope of any increase or decrease in its deferred tax liabilities and assets. The same case is in case of the deferred tax liabilities of Boral Ltd. The company does not have any deferred tax liabilities, and therefore no changes.
(xiv) Please calculate the cash tax amount for both companies.
The book tax amount of any company differs from its cash tax amount (Hanlon, Maydew & Saavedra, 2017).
(xv) Calculate the cash tax rate for both companies. Which company has higher cash tax rate?
The answer provided above has computed the cash tax amount of the companies BC Iron Ltd and Boral Ltd. However, there is a particular rate at which a company pays the cash tax. The following is the computation of BC Iron Ltd and Boral Ltd’s individual cash tax rates –
(xvi) Why is the cash tax rate different from the book tax rate?
In most of the instances, the book tax rate in an organization is different from the cash tax rate (Akamah, Omer & Shu, 2016). Since BC Iron Ltd does not have any income tax expense during the previous financial period, both the book tax and cash tax rate is 0%. However, the difference in the cash tax and book tax rates can be noticed in case of Boral Ltd. It can be seen that Boral Ltd’s book tax rate is 0.17 while its cash tax rate is 0.14. As a result, there is a difference in their book tax and cash tax rates.
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Bciminerals.com.au. (2018). Home – BCI Minerals. [online] Available at: http://www.bciminerals.com.au/ [Accessed 29 Sep. 2018].
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