International distribution of the corporate tax - Free Samples

Questions: 1. From your firms 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. 2. What is your firms tax expense in its latest financial statements? 3. Is this figure the same as the company tax rate times your firms accounting income? Explain why this is, or is not, the case for your firm. 4. Comment on deferred tax assets/liabilities that is reported in the balance sheet articulating the possible reasons why they have been recorded. 5. 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? 6. 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? 7. What do you find interesting, confusing, surprising or difficult to understand about the treatment of tax in your firms financial statements? What new insights, if any, have you gained about how companies account for income tax as a result of examining your firms tax expense in its accounts? Answers: Answer 1 After analysing the annual report of Audio Pixels Holdings Ltd, it is considered that equity capital of Audio Pixels Holdings Ltd is accompanied with contributed capital, owners equity and retained earnings. Contributed Equity Reserve Retained Earning Contributed equity It is the amount of capital contributed by the shareholders for the owners equity. Retained earnings- It is the amount of profit which company has accumulated and not distributed to its shareholders. Reserve- It is accumulated total distributable profit which could be plugged back by company in its business (Brigham and Ehrhardt, 2013). Contributed capital could also be defined as stakeholders equity which shareholders have invested in the company. In 2015, Audio Pixels Holdings Ltd is having AUD $ 37 million contributed capital which increased AUD $ 45 million in 2016. Accumulated profit of Audio Pixels Holdings Ltd has also shown negative data as company has been facing high amount of loss in its business functioning. Equity (Amount in dollar million) ($M) 2015 2016 Contributed equity 37 45 Retained earning (13) (18) Total equity (24) (24) Answer 2 Tax expenses of Audio Pixels Holdings Ltd It is considered that tax amount is charged on the profit of company and deducted from the overall net profit of company. The recording of tax expenses is shown in the profit and loss accounts. On the other hand, excess payment of tax would be shown in the deferred tax assets of company. The income tax paid by company is zero. It is observed that company has been suffering from high amount of loss throughout the time. It is inferred that company pays tax on its profit. In present case, Audio Pixels Holdings Ltd is having zero amount of tax implication due to its loss incurring business (Audio Pixels Holdings Ltd, 2017). Particular(AUD $ in million) 2015 2016 Income tax expenses 0 0 This table given reflects that company has loss in its business. Therefore, it is not allowed to pay tax on its loss. Answer 3 Tax rate figure of the Audio Pixels Holdings Ltd and its comparison with the tax deduction from the overall accounting income Current Tax: - It is evaluated that tax payment of Audio Pixels Holdings Ltd in 2016 is zero. It is analysed that company has been incurring high amount of losses in its business due to sluggish market condition. It reveals that company has zero level of tax obligations. Income tax is charged on the profit of company and for the recording of tax amount, Audio Pixels Holdings Ltd needs to comply with the IFRS rules and AASB-112. Audio Pixels Holdings Ltd is international company therefore, in order to harmonize with the domestic and international taxation rules; it has to comply with the AASB-112. In order to justify, whether the tax amount computed on the basis of computation i.e. 30% * net profit is no equal to recording of the tax charged on the profit in its financial statement, following example could be given (Cucchiella, DAdamo and Gastaldi, 2015). It is observed that the main differences between both amounts are found due to the difference between accounting and taxation rules and regulations. For instance, tax rate is charged on the profit of company i.e. 30% *AUD $ (5) million= AUD .15 million. Company could take rebate of this amount from the government from their future tax implication. On the other hand, as per the income tax rules and regulations, tax amount would be zero if there is no profit earned by company. The main difference between tax amounts arise due to different recording of tax expenses, revenue in the books of account of Audio Pixels Holdings Ltd. For instance, recording of bed debts recording, creating provisions and donations payment is different in as per the accounting and income tax rules and regulations. Therefore, it could be inferred that due to the difference between taxation rules and regulations and accounting rules, Audio Pixels Holdings Ltd may not have same tax amount figures computed by undertaking accounting income to recording of tax in financial statements. Answer4 Deferred tax assets/liabilities of the Audio Pixels Holdings Ltd Audio Pixels Holdings Ltd has been following international accounting rules and regulations for recording of taxes in its books of accounts. It is observed that company record deferred tax amount in its books of account either in its liabilities side or assets side. In Audio Pixels Holdings Ltd, company has non deferred tax assets or liabilities. Audio Pixels Holdings Ltd has not recorded deferred tax in its books of accounts. Recording of Deferred Tax:- The deferred tax amount recorded in the books of accounts Audio Pixels Holdings Ltd is zero. The deferred tax amount is recorded in the liabilities side or assets side of company so that it could be recognized and carried forward to the limit that is reasonably certain for the future taxable income against which deferred tax assets or liabilities would be realised. The recording of deferred tax assets and liabilities is recorded due to the difference between accounting and taxations rules. For instance, if Audio Pixels Holdings Ltd finds that due to difference between accounting and taxation provision. If company charge higher tax by considering accounting rules and regulations as compared to tax charged as per the taxations rules then excess amount would be shown as deferred tax liabilities of company. On the other hand, if tax is computed less due to different accounting and taxation rules and then excess payment to government would be recorded as deferred tax assets (Cucchiella, D Adamo and Gastaldi, 2015). Particular (AUD $ million) 2017 2016 Deferred tax liabilities 0 0 Deferred tax assets 0 0 Note- Audio Pixels Holdings Ltd can never have deferred tax assets and deferred tax liabilities in its books of account at the same time (Cobham and Loretz, 2014). Answer5 Current tax assets and other income tax payable by company It is evaluated that current tax payable by Audio Pixels Holdings Ltd is AUD $ 0. Company has been incurring losses in its business since very long time. It is observed that income tax payable of company is also zero. Audio Pixels Holdings Ltd is having no tax liabilities as it is incurring losses since four years. In addition to this, tax is charged on the profit of company. Therefore, there is zero tax implication on the business functioning of Audio Pixels Holdings Ltd. Deferred tax assets of Audio Pixels Holdings Ltd are also zero. Particular(AUD $ in million) 2016 2017 Income tax payable 0 0 It is observed that company has recorded zero tax payable in its books of accounts. The income tax payable is the liability which needs to be paid by company. Why income tax expenses is not same as the income tax payable It is analysed that income tax expenses charged on the profit and recorded for the current year in the profit and loss account of company. On the other hand, income tax payable is the accumulation of the tax liabilities of company which need to be paid by company to government (Brigham and Ehrhardt, 2013). Answer6 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 are the differences? Cash flow statement could be defined as statement comprised of details about the cash inflow and outflow from the business in current year irrespective of the fact whether it relates to current year or previous year. It is the part of the financial statement that is prepared with a view to analyse the inflow and outflow of cash from the business in particular year. The On the other hand, profit and loss account of company is prepared with a view to record all the expenses and revenue of company related to present year. It is prepared with a view to identify the actual profit and loss of company. A cash flow statement reveals all the tax payment made by Audio Pixels Holdings Ltd in the current year irrespective of the fact whether they relates to current year or previous year. Profit and loss account contains the tax amount which is charged on the current year profit. Answer7 Treatment of tax in your firms financial statements Interesting thing about the recorded its entire tax amount The main interesting thing about the recording of entire tax amount is related to recording of tax as per the accounting rules and regulations and accounting rules. The income tax is recorded in the books of accounts as per the AASB-122. The tax is not charged on the loss making company. Audio Pixels Holdings Ltd is highly loss making company. Surprising thing about the recorded its entire tax amount It is observed that recording of entire tax in Audio Pixels Holdings Ltd related to corporate governance and procedure of charging tax. It is evaluated that company can never have deferred tax assets and deferred tax liabilities in its books of account (Henry, et al. 2009). Difficulty in recorded the entire tax amount It is observe that Audio Pixels Holdings Ltd may find difficult to record the tax charged on its profit. It is considered that if company wants to books deferred tax liabilities in the books of account then it will first have to set off its entire deferred tax assets amount from its financial statements. The main difficulty would be for stakeholders of Audio Pixels Holdings Ltd who might find difficulty to understand the taxations rules and accounting policy of company. However, by reading notes to account, shareholders may find easy to understand tax recording process of company (Evans, 2016). New sight about the recording of taxes It is observed that Audio Pixels Holdings Ltd is having high amount of losses since very long time. Therefore, it is not required to pay taxes to government. However, the benefits of losses could also be used to set off taxes from the coming years in which it may require to pay tax in future (Alstadster, Jacob and Michaely, 2015). References Alstadster, A., Jacob, M. and Michaely, R., 2015. Do dividend taxes affect corporate investment?.Journal of Public Economics. Audio Pixels Holdings Ltd, 2017, annual report, Retrieved on 26th January, 2017 from https://www.audiopixels.com.au/index.cfm/investor/annual-report/ Brigham, E.F. and Ehrhardt, M.C., 2013.Financial management: Theory practice. Cengage Learning. Cobham, A. and Loretz, S., 2014. International distribution of the corporate tax base: Implications of different apportionment factors under unitary taxation. Cucchiella, F., DAdamo, I. and Gastaldi, M., 2015. Financial analysis for investment and policy decisions in the renewable energy sector.Clean Technologies and Environmental Policy,17(4), pp.887-904. Evans, A.C.M., 2016. What is a conceptually possible flow through design for an alternative vehicle in the private context in domestic income tax legislation? With an applied case study on the Australian business trust. Henry, K., Harmer, J., Piggott, J., Ridout, H. and Smith, G., 2009. Australias future tax system.Canberra, Commonwealth Treasury.