Key Topics
Corporate Accounting - Bell Financial Group Limited
(i)Items of equity and their understanding:
Bell Financial Group’s equity, amounting to $195.37 million at 31st December 2016, has following elements: Contributed Equity, Other Equity, Reserves, Non-controlling Interests and Retained Earnings. Each item of equity has been explained as under:
a)Contributed Equity: In Bell Financial Group Limited’s contributed equity amounting to $167.89 million consists of Ordinary Shares.
Company has 267,286,480 fully paid ordinary shares which makes its authorised capital to $167.89 million. The shareholders are entitled to receive dividends as declared from time to time and they are also entitled to one vote per share at general meetings of the firm. All shareholders carry same rights as to the share in company’s assets on winding up.
b)Reserves: Reserves standing at $ 699 million constitutes of Foreign Currency reserve, Share-based payments reserve, Cash flow hedging reserve and Treasury shares reserves.
Foreign Currency Reserve
This reserve record the value of any movement in the translation of foreign currency balances. This reserve stood at $ 529,000 on 31st December 2016 as compared to $ 610,000 million on 31st December 2015.
Share Based Payments Reserve
The Share Based Payment Reserve arises when the company grant options, deferred share rights and performance rights to its selected employees. The options and rights are given under the company’s equity-based remuneration plan.
Cash Flow Hedging Reserve
This reserve comprises the effective portion of the cumulative net change in the fair value of the interest rate swap related to hedged transactions. This reserve stood at $48,000 on 31st December 2016 as compared to %17,000 on 31st December 2015.
Treasury Reserve
This reserve represents the cost of the equity shares held by the Employee Share Trust which the group as a whole is required to show in its Consolidated Financial Statements. The amount in this reserve at the end of the current period is $2.1 million in comparison to $ 2.3 million at the end of previous year.
c)Non Controlling Interests: Non Controlling Interest is the minority interest in any entity. It signifies the portion that is not owned by the parent company. This is related to other investors and is reported when financial statements of the company are consolidated with the parent company. When the financial statement of the subsidiary company are consolidated its 100 % value is consolidated in the Consolidated Statements thus we have to record minority interest representing that part which don’t relate to us. In Bell Financial Group non controlling interest relates to the ownership of the Third Party Platform Pty Ltd. at 43.37%. Amount of non controlling interest in the balance sheet of the company is $ 5.02 million as compared to previous year when it stood at $ 4.5 million.
d)Retained Earnings: Company has Retained Earnings amounting to $ 19.96 million which represents the profits that has been accumulated and retained till the balance sheet date out of Net Profit attributable to shareholders of Bell Financial Group after deducting Dividends paid. Retained earnings reflect the money that the company has made and retained since its inception. Retained earnings at the end of previous financial year were $ 16.1 million.
Changes and Reason of Change for each item of equity:
Following is the ‘Statement of changes in equity’ of the company depicting the changes in each item of equity:
Company’s issued share capital has not changed during the financial year as the company has not issued any shares during the year. Other issued capital representing unpaid portion of the shares issued to employees under Employee Share Ownership Plan also remains the same.
Negative balance of Treasury Share reserve is reduced by $ 167,000 as the company has awarded employees share for the same amount. Share Based Payment Reserve has been increased by $ 6.77 million in total as it has increased by 8.44 million because of new amount in share based payment and decreased by 1.67 million as shares have been issued to employees for that amount. Negative value of cash flow hedge has further increased $ 31,000 as change in cash flow hedges of the company. Non controlling interest has been increased by 5.27 million which represents the share of minority in the profit earned by the subsidiary. Company’s retained earnings have increased to $ 19.96 million from $ 16.08 million. This increase of around $ 3.88 million is mainly because of the profits retained by the company this year from the profits made ($16.91 million) after distributing dividend of $ 12.50 million.
Overall Company’s equity balance has increased from $190.23 million to $195.37 million.
(ii)Bell Financial Group’s tax expense in its latest financial statements i.e. for the year ending 30th December 2016 is $ 8.27 million as compared to $ 6.44 million in the previous financial year. This increase is in relation to increase in Profit before income tax expense which has increased by $ 2.34 million from $ 22.84 million to $ 25.18 million.
(iii)Company Tax Rate is 30% i.e. the profits of the company are chargeable to 30% tax. We can see below that Firm’s tax expense is not the same as the company tax rate times firm’s accounting income.
Company Tax Rate X Accounting Income = $ 25.18 million X 30% = $ 7.55 million ≠ $ 8.27 million.
This can’t be same since Income Tax Expense of the firm includes Current tax expense, Deferred tax expense, Tax expense or income as a result of under or excess provision in prior years. Moreover there are some incomes which are not taxable and some expenses which are not deductible for calculation of profit on which tax is calculated. Also there can be some income which is taxable at a different rate than the company tax rate.
Reconciliation of the Income Tax Expense of the company and the product of company tax rate and firm’s accounting income is as under:
(iv)Deferred tax assets/liabilities refer to the accounts that arise due to temporary differences between company’s accounting and taxation laws.
Deferred tax asset signifies that the firm has paid taxes in advance in its balance sheet for the incomes it will record in future or for the expenses it has recorded now but will be deductible later.
Whereas deferred tax liability signifies that the firm has underpaid its taxes in its balance sheet for the incomes it has recorded now but will be taxable in future or for the expenses that are deductible now but firm will record in future.
In Bell Financial Group’s Balance Sheet deferred tax asset exists as shown below. Management of the company has concluded that there is sufficient evidence that there will be profits available in the future against which the tax losses will be utilised.
