HI5020 New Regulations and Changing Policies of Taxation

The company has purchased the plants and machinery in year 2017. Due to which it has an increase in the investment activities, which has also increased the outflow of cash in the business. Also the company had brought an issue of shares for AUD$ 396 million to its shareholders, which results into an increase in the inflow of cash in the business. It strengthens the financial activities of the company (JB HI-FI, 2017).

The company has paid the dividend for AUD$ 119 million, which leads to a rise in the cash outflow and also it reflects the distribution of profits in the current year.

Conclusively, the evaluation of the cash flow statement shows an increase of AUD$ 21 million since last five years.

Answer to question-2

Comparative analysis of the all three main flow of activities

The above mentioned table depicts the variations in the cash flow in last five financial years. These changes are happened due to the inflow and outflow activities in the business. The variation in the outflow of cash is the result of investing activities and the inflows changed due to the financial activities (JB HI-FI, 2017).

Answer to question no-3

The statement includes various items such as interest expenses, provision for tax, gross profit and operating expenses etc.

However there are some items which are nit recorded in the cash flow statement but affect the cash flow of the company. These items are non-cash items such as provision for income tax and depreciation.

Answer to question no-4

As per my understanding, the income statement of the company consist the items related to the revenue income and expenditure. It includes the total income; interest charged form the profit; provision for taxation and taxation accounting. The earning per share is the earning remained for the shareholders (JB HI-FI, 2017).

Answer to question no-5

The income statement includes various items in it such as gross profit, total revenue, operating expenses, provision for taxation and interest expenses. There are some items like accrued expenses and advance made to the clients are the expenses, which shown in the cash flow statement but have not been included in the profit & loss account of the company. The items are included in the cash flow statement irrespective of the facts that they belong to the same year or not (JB HI-FI, 2017).

Answer to question no-6

Tax is an imposition on the income from the business. It is an obligation which is charged by the government over the profits of the company. JB Hi-Fi Company has charged with the tax of AUD$ 65.6 million in year 2017, which is lower as compared to the last year’s tax payment which was AUD$ 86.6 million (Hanlon, M., Maydew, E.L. and Saavedra, D., 2017).

The management of the company has increased the interest expenses by introducing more debt funding in the company to decrease its tax liability.

Answer to question no-7

The annual report of the company shows that the company’s tax rate time described in the expenses is not the similar to the tax payment actually made by the company as per its income statement.

Explain, why this is with reason

The tax paid by JB Hi-Fi Company for AUD$ 65.6 million in year 2017 includes the current year’s tax and the deferred tax payment for the last year as well. The computation of tax as per the times expenses described in the income statement than the company will charged with the tax liability of AUD$ 77.7 million (Rubinstein, and Vettori, 2018).  As the profit of the company is AUD$259 million on which the tax rate of 30% applicable for the calculation of tax liability (Phillips, Pincus, and Rego, 2013).

• The treatment of tax in the income statement is different as per the accounting rules, standards and regulations of the taxation
• The tax expenses in the income statement are included on the basis of the income tax regulations. On the other hand the computation of tax liability on the basis of company’s tax rate times expenses is depends on the accounting regulations.
• Two reason due to which the tax payment varies:

1. It may be possible that the revenue and expenses is not allowed under the taxation rules but at the same time they are included in the profit & Loss account as per the accounting regulations.
2. The accounting rules and income tax regulations have different policies for the recording of expenses like depreciation, bad debts and other charges (JB HI-FI, 2017).

Answer to question no-8

The provision for future taxation is considered as deferred tax liability. The company has deferred tax liabilities of AUD$ 8.2 million as per its balance sheet. This is a kind of tax which is due for the same period but has not yet been paid. The amount of deferred tax is carried forward till the time when company has earned the sufficient amount to pay off the deferred tax and to realise the deferred assets. Company’s balance sheet has shown the deferred tax liability in its liability side. The recording of deferred tax liability is also differs on the basis of the accounting approaches and income tax regulations. When that difference results into the higher payment of tax by the company then such amount paid in access is considered as the deferred tax assets. On the other side, if the company paid less payment of tax due to the difference of both approaches then the same would be considered as the deferred tax liability.

JB Hi-Fi Company has recorded the deferred tax liability in its accounts which means it has paid less tax to the government (Kubick, T.R., Lynch, D.P., Mayberry, M.A. and Omer, T.C., 2016)

Answer to question no-9

The company recorded in its books the income tax due for the current year and the current assets tax. In 2017, the company has AUD$9 million of current tax assets, which was AUD$4.9 million in the year 2016.

The tax due for the payment or payable tax liability on the company is the amount as per the income tax rules (Rubinstein., and Vettori, 2018).

JB Hi-Fi Company has made deferred tax payment of AUD$ 8.5 million.

Why the income tax payment is not same with the income tax payable

The income tax payment and payable differs due to the reason that the income tax is charged on the profits of the company but the income tax payable includes the outstanding tax liability which will be paid by the company at an uncertain time in the future. It is also recorded in the balance sheet of the company at the liability side (Pomeranz, 2015).

Answer to question no-10

The statement of cash flow includes all the flows of cash whether inflow or outflow irrespective of the fact that the flow of cash belongs to the same year or not (Pomeranz,00202015).

As per the cash flow statement of the company the company has paid AUD$98.5 million for the payment of the tax liability, which also includes the entire tax payments. The income tax expenses shown in the income statement are not the same with the income tax payment recorded in the cash flow statement.

Reason

The cash flow statement includes all the tax payment made by the company in the current year, without considering the fact that the flow belongs to which year but the tax charged on profits is considered as per the income tax rules.

Answer to question no-11

Treatment of the Tax

Interesting thing

The excess amount of tax paid by the company as per the income tax rules is considered as idle money which might be used by the company in any other earning activity.

Due to the changing rules and taxation regulations it can be difficult for the companies to evaluate the proper and accurate tax payments (Robinson, Stomberg, and Towery, 2015).

Surprising thing

The thing which makes us surprise is, that a company cannot record both deferred tax assets and deferred tax liability in its books at the same time.  

Difficulty in recorded the entire tax amount

The company with deferred tax assets blocks high amount of cash of its business. Due to which sometimes it also lost the opportunities in lack of funds. The main difficulty form which the company suffers is the recording of the deferred tax assets and liability both (Towery, 2017).

Conclusion

Due to the difference between the domestic and international reporting framework, the companies has the deferred tax liabilities and deferred tax assets in its books. Conclusively we can state that to avoid the grievances in the taxation accounting the company should follow the proper regulations and rules of taxation and should also use a proper reporting framework. 

References

Hanlon, M., Maydew, E.L. and Saavedra, D., 2017. The taxman cometh: Does tax uncertainty affect corporate cash holdings?. Review of Accounting Studies, 22(3), pp.1198-1228.

JB HI-FI, 2017., Annual report., [Online]., Available from 

Kubick, T.R., Lynch, D.P., Mayberry, M.A. and Omer, T.C., 2016. The effects of regulatory scrutiny on tax avoidance: An examination of SEC comment letters. The Accounting Review, 91(6), pp.1751-1780.

Phillips, J., Pincus, M. and Rego, S.O., 2013. Earnings management: New evidence based on deferred tax expense. The Accounting Review, 78(2), pp.491-521.

Pomeranz, D., 2015. No taxation without information: Deterrence and self-enforcement in the value added tax. American Economic Review, 105(8), pp.2539-69.

Pomeranz, D., 2015. No taxation without information: Deterrence and self-enforcement in the value added tax. American Economic Review, 105(8), pp.2539-69.

Pulker, C.E., Scott, J.A. and Pollard, C.M., 2018. Ultra-processed family foods in Australia: nutrition claims, health claims and marketing techniques. Public health nutrition, 21(1), pp.38-48.

Robinson, L.A., Stomberg, B. and Towery, E.M., 2015. One size does not fit all: How the uniform rules of FIN 48 affect the relevance of income tax accounting. The Accounting Review, 91(4), pp.1195-1217.

Rubinstein, F., and Vettori, G. G. 2018. Taxation of Investments in Bitcoins and Other Virtual Currencies: International Trends and the Brazilian Approach

Towery, E.M., 2017. Unintended consequences of linking tax return disclosures to financial reporting for income taxes: Evidence from Schedule UTP. The Accounting Review, 92(5), pp.201-226.