Essay: Analysis Of Owners Equity, Cash Flow & Corporate Income Tax Of JB HI-FI & Harvey Norman.

Owners Equity

You need to do the following tasks:

Owners Equity

(i) From your companies’ financial statements, list each item of equity and write your understanding of each item. Discuss any changes in each item of equity for your firms over the past year articulating the reasons for the change.

(ii) Provide a comparative analysis of the debt and equity position of the two firms that you have selected.

Cash Flows Statement

(iii) From the financial statement of your chosen companies, list each item reported in the cash flows statement and write your understanding of each item. Discuss any changes in each item of cash flows statement for your companies over the past yearsarticulating the reasons for the change.

(iv) Provide a comparative analysis of your companies’ three broad categories of cash flows (operating activities, investing activities, financing activities) and make a comparative evaluation for three years.

(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.

Other Comprehensive Income Statement

(vi) What items have been reported in the other comprehensive income statement for each company?

(vii) Why have these items not been reported in Income Statement/Profit and Loss Statements?

(viii) Provide a comparative analysis of the items shown in the other comprehensive income statement section for the two companies. If these items were included in the income statement / profit and loss statements of each company, how would theprofit attributable to shareholders of the company be affected?

(ix) Should other comprehensive income be included in evaluating the performance of managers of the company?

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?

(xi) Calculate the effective tax rate for both companies that you have selected. Effective tax rate is calculated as (income tax expense / earnings before tax). Which one of the companies has the higher effective tax rate?

(xii) Comment on deferred tax assets/liabilities that is reported in the balance sheet articulating the possible reasons why they have been recorded.

(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?

(xiv) Please calculate the cash tax amount for both companies using the book taxamount, changes in the deferred tax assets and deferred tax liability.

(xv) Calculate the cash tax rate for both companies. Which company has higher cash tax rate?

(xvi) Why is the cash tax rate different from the book tax rate?Please remember some aspects of your companies’ treatment of tax can be a very complicated area, particularly for some companies. For a better understanding of the concepts included in the assignment that has not been introduced in the class, please do your own research.

Accounting has the important role in developing the organization by recording the information related to the finances in proper and systematic manner. The report here has highlighted the owner’s equity so that the amount of equity within the organization can be determined. With this the comparison between the debt and equity so as to analyze which source is used by the organization. The organizations used are JB HI-FI Limited and Harvey Norman. JB HI-FI Limited is the organization which deals in video games, Blue Rays, DVDs, CDs and electronic hardware and electric appliances. While Harvey Norman is an Australian based multinational retailer of furniture, computers, consumer electric products and communication. The last part of the report has explained about the tax expenses so that the actual taxes for both the organization can easily be determined.

(I) it very well may be noticed that there are various things that can be recorded under the head of Equity in a financial position sheet. It tends to be noticed that Equity is the estimation of benefits less the quantity of liabilities (Harvey Norman Holdings Limited, 2017). The measure of value is recorded under the accounting report and incorporates the specific things. These things are:

Contributed Equity:

The contributed equity is also known as the paid-up capital. It can be determined as the cash or any other assets which have been given by the shareholders to the organization in exchange for stock. It is also the price which the shareholders pay for their stake in the organization (Atanasov and Black 2016).

Reserves:

The reserves demonstrate the acknowledge balance and perceived as the piece of investor value. The reserves are the benefits that can be appropriated for the particular reason (Harvey Norman Holdings Limited, 2017). These are set to buy the advantages and set off the liabilities for repairs and upkeep.

Retained Earnings:

It very well may be expressed that the retained incomes are benefits and a total profit of the firm after the representing profits. It very well may be gotten by the including the aggregate sum of pay and subtracting the misfortunes from the beginning and furthermore subtract the number of profits that can be paid to investors (Harvey Norman Holdings Limited, 2017).

Patent entity interest:

These are the interests which are being paid by the organization in the form of interest of any of the patent right for some of the assets within the organization has been taken.

Non-controlling interest:

Cash Flow Statement

It is one of the parts of the subsidiary organization’s stock which is owned by the parent organization. The minority interest is less than 50% of the outstanding shares (JB HI-FI Limited, 2017).

Yes, change has been observed as in the case of Harvey Norman the amount of the contributed equity has been increased from $385296 to $386309 (Harvey Norman Holdings Limited, 2017).

(ii) In this question, a short report should be possible on the things of monetary record. It additionally thinks about the measure of obligation and value with the earlier year of the organization. By investigating the information of two associations, the analyst can without much of a stretch decide the proportion of obligation and value.

From the analysis of JB HI-FI Limited, it can be analyzed that the amount of equity has been increased from the year 2017 to 2016 that is in 2016 the amount was $ 404.7 which increased to $853.5 in 2017. The debt in the organization also showed the increasing trend that is in 2016 it was $587.6 which increased to $1598.8 in 2017 (JB HI-FI Limited, 2017). Therefore, the debt of the organization is more which risky situation for the organization is.

In case of Harvey Norman, the amount of the debt has shown the decreasing trend that is it decreased from $1743126 in 2016 to $1376837 in 2017 while the amount of equity has increased from $2688674 to $2812907 (Harvey Norman Holdings Limited, 2017). Therefore, it can be said that the organization is funding its sources through equity which will enable to pay off all the debts easily.

(iii)The cash flow statement shows the liquidity position of the organization by analyzing the inflow and outflow of cash and cash equivalents. Cash flow statements items are shown below:

Operating Activities	It alludes to the inflow and outpouring from a business of enterprises exercises, for example, purchasing and offering the administrations and items and so forth. It comprises receipts from the customers and GST that expansion the money and it additionally makes the instalments to representatives and providers that demonstrate the outpouring of money. The measure of intrigue got is additionally recorded in this movement (Harvey Norman Holdings Limited, 2017).
Investing Activities	These reports the aggregate change in the situation of an organization that can result from the additions and misfortunes of speculation and the variety can result from the sum burned through regularly the ventures, for example, assets and so forth (JB HI-FI Limited, 2017). It includes the instalment for property, hardware and plant, proceeds from the transfer of speculations.
Financing Activities	The financing activities record those exchanges that can be viewed with the lenders and partners. It very well may be noticed that the fund can be utilized to extend and works the business at a substantial scale (Welford, 2016). It comprises of profits paid to the partners, instalments for obtaining of offers and so forth.

(IV) There are various differences which have been observed in the operating financing and the investing activities of both the organization. These needs to be looked forward so that the effectiveness within the organization can be maintained and the growth of organization can be achieved by analyzing the actual performance in the external market. The variations have been defined as follows:

JB HI-FI Limited

Activities	2015	2016	2017	Change in 2017-16		Change in 2016-15
Operating Activities	179,896	185,140	190.6	-184,949	5,244
Investing activities	(44,370)	(52,001)	(885.5)	51,116	-7,631
Financing Activities	(129,640)	(130,565)	715.9	131,281	-925

Activities	2015	2016	2017	Change in 2017-16	Change in 2016-15
Operating Activities	340448	437691	425140	-12551	97243
Investing activities	-81803	-179853	-198765	-18912	-98050
Financing Activities	-220597	-307427	-287124	20303	-86830

(V) The financing action records those exchanges that can be viewed with the lenders and partners. It very well may be noticed that the fund can be utilized to extend and works the business at a substantial scale. It comprises of profits paid to the partners, instalments for obtaining of offers and so forth. It has also been observed that there has been the change in the financing activities by comparing both the years have shown the positive results which can be said that the financial position of the organization is strong and this in turn will enable in attaining sustainability as well as transparency within organization.

Other Comprehensive Income Statement

In JB HI-FI Limited, it has been noticed that there is the increase in operating activities from 2015 to that of 2017 which can be said that the organization has much cash so as to fund its operations. With this, the investing and the financing activities has also shown the increase in the cash flow statement (JB HI-FI Limited, 2017).

In case of Harvey Norman, it very well may be noticed that there is converse in the working exercises which demonstrates that they produce the administrations to acquire more benefit and that prompts the advantages in future (Harvey Norman Holdings Limited, 2017). Aside from this, there is a lessening in the contributing action that shows they didn't put their benefits in associations and due to there is a low piece of the pie.

(VI)  Almost the items covered in the comprehensive income statement are the same. In fact, there are most items in the comprehensive income statement of Harvey Norman Limited when compared to the statement of comprehensive income of JB HI-FI Limited (JB HI-FI Limited, 2017). This will be explained by the following income statement of both the organizations.

The items included in comprehensive income statements also include exchange differences that arise on the translation of foreign operations which do not arise due to the efficiency of any particular personal or employee (Harvey Norman Holdings Limited, 2017). Apart from that, it includes a change in the fair value of cash flow hedges (Crane and Matten 2016). Thus, all the items will be categorised according to their nature and will fall either under items that may be reclassified or may not be reclassified subsequently to profit or loss. After summing up both the items, comprehensive income attributable to or belonging to the shareholders (only equity shareholders) are determined and accordingly analysed.

(VII) There is a specific format of the comprehensive income statement and income statement and both are totally different from each other. Items covered in comprehensive income statement should not be reported in income statement or statement of profit or loss (JB HI-FI Limited, 2017). This is because the items covered in comprehensive statements have nothing to do with the operating efficiency or productivity that arises in the normal business operations of any business enterprise. However, it does not mean that the items covered or mentioned in these comprehensive income statements are of no use and are useless (Harvey Norman Holdings Limited, 2017). These items depict the comprehensive income attributable to or belonging to equity shareholders or owners of the concerned business organizations or enterprises. They should form part of the financial statement of the companies since they serve the financial needs of the owners and should be considered as such by the concerned investors.

Accounting for Corporate Income Tax

(VII) Both organizations have prepared comprehensive income statement in accordance with the generally accepted accounting principles popularly known as GAAP (Schaltegger and Crutzen, 2016). It has been observed the items covered or listed in such statement is higher in Harvey Norman when compared with JB HI-FI Limited. While the comprehensive statement of Harvey Norman comprises income that may be reclassified subsequently to profit or loss as well as items that will not be reclassified subsequently to profit or loss, comprehensive statement of JB HI-FI Limited contains only items that will be reclassified subsequently to profit or loss (JB HI-FI Limited, 2017). It can be said that JB HI-FI Limited does not have any financial item that will not be reclassified subsequently to profit or loss or income. Thus, these have not been mentioned in the comprehensive income statement.

The measuring unit of items covered in the comprehensive income statement of both the organizations are different. While Harvey Norman Holding Limited has reported all the items therein in $ 000, JB HI-FI Limited has reported their items in $ million (Harvey Norman Holdings Limited, 2017). However, it does not affect the comparison between these business enterprises or organizations. For making a better comparison between the items listed in comprehensive income statements of these two enterprises, it is advisable to convert items mentioned therein into same measuring unit and variable.

(IX) It is not wise able to include consolidated comprehensive income in determining and evaluating the performance and progress of top-level managers working in any business enterprise since it will not reflect and depict the true position of financial performance and progress of business operations in which any particular business enterprise is actively or majorly engaged (Harvey Norman Holdings Limited, 2017). Thus, different statements are prepared in different formats and are assessed accordingly.

(XI) Both the organizations namely, JB HI-FI Limited and Harvey Norman Limited have a different amount of tax expenses. However, both the companies have followed the same accounting expenses in relation to such financial component. While the tax expense of JB HI-FI Limited is$ 86.8 million, the income tax expense of Harvey Norman Limited amounts to$ 186.84 million (JB HI-FI Limited, 2017).

Particulars	Harvey Norman	JB HI-FI Limited
Income tax expense	186840000 or 186.84 million	86800000 or 86.8 million

Thus, the income tax expenses of Harvey Norman Limited are higher than that of JB HKI-FI Limited. It can be said that income tax expenses are almost double (Harvey Norman Holdings Limited, 2017). It is important to note that the above income tax expenses include the deferred tax expenses. Thus, it covers both current tax expenses as well as deferred tax expenses.

(XI) 

	Harvey Norman	JB HI-FI Limited
Particulars	(Amount in $ million)	(Amount in $ million)
Earnings before tax	639.81	259.2
Income tax expense	186.84	86.8
Effective tax rate	29.20%	33.49%

The above table explains the detailed comparison of the effective tax rate of both the business enterprises. It has been observed that JB HI-FI Limited has a higher effective tax rate than that of Harvey Norman Limited. This is because the effective tax rate of Harvey Norman is only 29.20% while that of JB HI-FI Limited is 33.49% (Harvey Norman Holdings Limited, 2017).

(XII) The below screenshot has been taken from the extracts of the annual report of Harvey Norman Holdings Limited. It can be observed that the company has adjusted deferred tax assets against deferred tax liabilities which are in accordance with the GAAP indicating deferred tax liabilities of $ 267,219 in the Balance sheet (Harvey Norman Holdings Limited, 2017).

In the same manner, the following extract has been taken from the annual report of JB HI-FI Ltd. which has also adjusted deferred tax liabilities against deferred tax assets. Thus, DTL stands for $ 8.2 million (JB HI-FI Limited, 2017).

(XIII) On comparing deferred tax expenses of both the organizations, it can be observed that there exist deferred tax liabilities in JB HI-FI Limited as well as Harvey Norman after the adjustment of deferred tax assets (JB HI-FI Limited, 2017).

JB HI-FI Limited
Particulars	(Amount in $ million)	(Amount in $ million)
	2017	2016
Deferred tax assets	0	7.8
Deferred tax liabilities	8.2	0
Harvey Norman
	2017	2016
Particulars	(Amount in $ million)	(Amount in $ million)
Deferred tax liabilities	267219	226254

(XIV)

Particulars	Harvey Norman	JB HI-FI Limited
Particulars	(Amount in $ million)	(Amount in $ million)
Cash tax amount	147.82	77.8

The above table computes the tax amount that has been paid in cash. This amount has been computed considering the income tax amount along will deferred tax expenses (Ada, et. al., 2015).

(XV) Tax calculation of both companies

Particulars	Harvey Norman	JB HI-FI Limited
Particulars	(Amount in $ million)	(Amount in $ million)
Earnings before tax	639.81	259.2
Cash tax expense	147.82	78.3
Cash tax rate	23.10%	30.21%

The above table explains that the cash tax rate of JB HI-FI Limited is higher than that of Harvey Norman Holdings Limited (Harvey Norman Holdings Limited, 2017).

(XVI) The first and foremost reason for the difference in between cash tax rate and book tax rate is the difference that arises between accounting income and taxable income computed as per the taxable provisions (Ada, et. al., 2015).

Conclusion

It can be summarized from the overall report that it gave the understanding of various items reported in the distinct statement of the corporate accounting. To achieve the objectives the director needs to record the exchanges in the right and dependable way. For this, they examine the accounting report in which every one of the benefits and liabilities are recorded that knows the situation of the organization. The association additionally delineates the cost which is caused in the money related year and furthermore confirms the income. On the off chance that there is more income than costs then it is a benefit and bad habit e-versa. It additionally recognizes the situation of money than whether it is inflow and outpouring through the income proclamations. On the off chance that the two associations can appropriately keep up the records the association can make viable choices.

References

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Atanasov, V. and Black, B., (2016) Shock-based causal inference in corporate finance and accounting research.

Crane, A. and Matten, D., (2016) Business ethics: Managing corporate citizenship and sustainability in the age of globalization. UK: Oxford University Press.

Harvey Norman Holdings Limited, (2016) Annual Report. [Online]. Available at: https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_HVN_2016.pdf [Accessed: On 23 September 2018]

Harvey Norman Holdings Limited, (2017) Annual Report. [Online]. Available at: https://clients.weblink.com.au/news/pdf2/01784649.pdf. [Accessed: On 23 September 2018]

JB HI-FI Limited, (2016) Annual Report. [Online] Available at: https://www.csr.com.au/-/media/corporate/files/annual-reports/2016_annual_report_-for_31_march-2017.pdf [Accessed: On 23 September 2018]

JB HI-FI Limited, (2017). Annual Report. [Online]. Available at: https://www.jbhifi.com.au/Documents/2017%20Annual%20Report.pdf. [Accessed: On 23 September 2018]

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Schaltegger, S. and Crutzen, N., (2016) Integrating corporate sustainability assessment, management accounting, control, and reporting. Journal of Cleaner Production, 136, pp.237-248.

Welford, R., (2016) Corporate environmental management 1: systems and strategies. Germany: Routledge.