Essay: Cash Flow Assessment Of Telstra Corp. Ltd.: Findings And Analysis.

1. From your firm’s financial statement, list each item of 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 firm over the past year articulating the reasons for the change.
2. Provide a comparative analysis of your company’s three broad categories of cash flows (operating activities, investing activities, financing activities) and make a comparative evaluation for three years. Other comprehensive income statement
3. What items have been reported in the other comprehensive income statement
4. Explain your understanding of each item reported in the other comprehensive income statement
5. Why these items have not been reported in income statement/profit and loss statement accounting for croporate income tax
6. what is your firm’s tax expense in its latest financial statements?
7. Is this figure the same as the company tax rate times your firm’s accounting income? Explain why this is, or is not, the case for your firm.
8. comment on deferred tax assets/liabilities that is reported in the balance sheet articulating the possible reasons why they have been recorded.
9. 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?
10. 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?
11. What do you find interesting, confusing, surprising or difficult to understand about the treatment of tax in your firm’s financial statements? What new insights, if any, have you gained about how companies account for income tax as a result of examining your firm’s tax expense in its accounts?

The report intends to state on the various types of finding based on cash flow assessment of “Telstra corporations Ltd.” Some of the main assessment of the study has included a comparative analysis of three important aspects of cash flows specifically stated with operating, investing and financing events. It is also discussed on the various changes over the past three years based on the categorisation of information. The second section of the report have shown the elements from other comprehensive income statement and items which are not reported in the “profit and loss statement” or “income statement” of the company. The third section of the study have shown the expense of the formats for latest financial statement and included various other depictions on corporate income tax including the items which are not reported in the PL statement or income statement of the company. These interpretations are further followed with accounting for corporate income tax. This is done based on the depictions of firm’s tax expense as for the latest financial statement. Additionally, the report has shown that deferred tax assets and liabilities along with possible reason for recording the same. The last section of the report has depicted with the firm’s tax expense as per company tax rate times firms accounting income has been presented

The important analysis on cash flow statement for this report has been prepared with “Telstra Corporation Ltd”, which is one of the leading communications and technology company in Australia known for “offering full range of communications services and competing in all telecommunications markets” (Telstra.com.au 2018). The main segregation of the “cash flow statement” for the company has been done based on “operating activities, investing activities and financing activities” (Schaltegger, Etxeberria & Ortas, 2017).

Some of the main consideration of the items under cash from operating activities have included the “Receipts from customers”, “Payments to suppliers and employees (Inclusive of GST)”, “Government grants received”, “Net placement of deposits by Autohome Inc. that are not part of cash equivalents” and income tax paid. Telstra’s experienced a significant improvement in terms of generating more receipts from customers. This is evident with increasing receipt from $ 31163 in 2016 to $ 31288 in 2017. However, due to increasing operations it had to pay more amount of cash to the suppliers and employees in 2017 compared to 2015 and 2016. In 2016, the company had included “Net placement of deposits by Autohome Inc. that were not part of cash equivalents”. It is to be further descent that there was a considerable amount of increase in government financial assistance obtained by the company in 2017. Moreover, the income tax payment has also reduced from $ 1860 in 2016 to $ 1751 in 2017 (Reid & Myddelton, D, 2017).

Other Comprehensive Income Statement

Some of the main items included in the cash from investing activities comprise of

• “Payments for property, plant and equipment”
• “Payments for intangible assets”
• “Payments for business and shares in controlled entities (net of cash acquired)”
• “Payments for joint ventures and associated entities”
• “Payments for other investments”
• “Proceeds from sale of property, plant and equipment”
• “Proceeds from sale of business and shares in controlled entities (net of cash disposed)”
• “Proceeds from sale of other investments”
• “Distributions received from joint ventures and associated entities”
• “Interest received”
• “Other investing activities”

The various types of payment associated to “property, plant and equipment” are considered to be a part of proceeds from the advances and deposits. The different types of payments associated to “property, plant and equipment” are recognised as the amounts which are needed to conduct business activity. On the contrary, these assets have been conducive in providing several types of economic benefits to Telstra Corporations which are included as proceeds (Ramanna, 2014). It needs to be further discerned that Telstra has experienced a considerable increase in proceeds from sale of other investments and this clearly shows that the company has been able to generate adequate cash from items included under fixed assets. These proceeds are considered as a contract specifying the total tenure of the payment and the amount which is to be received along with any interest payable. However, based on the depiction of overall cash used in the investment activities it can be clearly depicted that Telstra has made more payments than received in 2015, 2016 and 2017 which is mainly due to “payments for intangible assets and PPE” (Miao, Teoh & Zhu, 2016).

The borrowings of the company signify “net amount disbursed to a borrower on the part of the lender under the terms of loan agreement”. Under the cash from financing activities Telstra has included items such as:

• “Proceeds from borrowings”
• “Repayment of borrowings”
• “Repayment of finance lease principal amounts”
• “Share buy-back”
• “Purchase of shares for employee share plans”
• “Finance costs paid”
• “Proceeds from sale of controlled entity shares”
• “Dividends paid to equity holders of Telstra Entity”
• “Other financing activities”

The overall depictions of the cash from financing activities have revealed that proceeds from borrowings has considerably decreased in 2017. It is also discerned that company has to make more repayment of borrowings in 2017, compared to 2016 and 2015. Moreover, the amount of share buyback is also considerably increased in the recent times. The main rationale for decreasing trend of net cash flows used in financing activities can be also seen with dividends paid to the equity holders of Telstra. This has amounted to $ 3763 in 2017. It can be clearly depicted that the main emphasis for the company in 2017 was seen with an attempt to increase proceeds from borrowings and purchasing of shares from employee share plans (Collins, Hribar & Tian, 2014).

It can be clearly recognised from the annual report published by Telstra corporations Ltd has been segregated into CGU from the “operating activities, investing activities and financing activities” (Nejad, Ahmad & Embong, 2018). The illustration of a comparative analysis in all the mentioned areas for the last three years has been depicted below as follows:

Corporate Income Tax Accounting

The figure represented above clearly suggests that the net cash flow from operating activities have shown consistent decrease in in all the three years, due to increasing cash paid to the suppliers and employees inclusive of GST. On the contrary, the net cash flows used in the investing activities showed a significant increase from 2015 2016 due to “proceeds from sale of business and shares in controlled entities” (Damodaran 2016). However, a significant decrease was observed by the company in 2017 due to more amount of payment made for intangible assets. Despite of significant increase in proceeds from sales of other investments in 2017, this amount was offset by increasing payments for fixed assets such as “property plant and equipment” and “payment for intangible assets”. Therefore, due to the factors such as more payments for fixed assets and intangibles and less amount of distributions received from joint ventures, the company has experienced a cash crunch towards investing activities in 2017 (Christensen et al. 2015).

The annual report of Telstra corporations Ltd has been used to list down the items under the other comprehensive income statement with “Foreign currency translation reserve, Cash flow hedging reserve and Foreign currency basis spread reserve”.

It has been depicted that the company has used the reserve for foreign Currency translation for the conversion of outcomes associated to foreign subsidiaries of “parent firm to the reporting currency”. The application of cash flow hedging reserve has been conducive in depicting the firm’s intention to minimise the overall exposure of variations in cash flow of an asset or liability due to the changes in risk areas such as rate of interest on debt instrument associated to floating rate. It is also discerned that the income tax expense has been incurred on the PBT of Telstra (Goh et al. 2016).

A more elaborated explanation of net income has been depicted with other comprehensive income. Telstra corporations have incorporated this statement for assimilating the important details based on the value of aforementioned items. The main rationale for including these items are being mentioned in terms of “other comprehensive income statement” as these are seen to be providing a more comprehensive and complete overview for the factors associated to operations of the business which we are not disclosed in the income statement of the company (Grubert and Altshuler 2016).

The obligation for tax expense is mainly due to the factors associated to state government proceedings, federal and municipal activities. In case of Telstra, the total income tax expense has amounted to $ 1773 in 2017 in contrast to $ 1768 in 2016 (Graham et al., 2017).

Conclusion

It is clearly depicted that Telstra corporations earned profit before income tax expense amounting to $ 5600 in 2016 and $ 5647 in 2017. This amount has been clearly inherent from the tax rate of 30% on PBIT.

The review of the deferred tax assets is done by the company at the end of each reporting period. The carrying amount is seen to be recognised to only that extent it is seen to be probable as for the sufficient taxable profit which shall be utilised with the benefits of the company. In addition to this, the company offsets the DTL and DTA in the financial statement which are related to income taxes levied by the taxation authority (Khan, M., Srinivasan, S. and Tan, 2016).

The different types of disclosures about franking credits as a result of income tax payable was discerned to be $ 146m in 2017 and $ 158m in 2016. In addition to this, the total amount of income tax payable in the subsequent year was observed to be $ 161m in 2017 and $ 176m in 2016 (Klassen, K.J., Lisowsky and Mescall, 2015).

The major disclosures from the income tax expense has been included with current tax expense, “Deferred tax resulting from the origination and reversal of temporary differences” and “Under provision of tax in prior years”. In addition to this, the income tax expense as per “Notional income tax expense calculated at the Australian tax rate of 30%” is depicted to be $ 1694 in 2017 and $ 2294 (Liu et al., 2016).

The critical assessment for tax treatment have showed that the company has earned profit even after deduction of income tax expense. This was evident with increasing “net profit after tax from continuing operations up by 1.1% to $3.9 billion” (Qamar et al., 2016).

Conclusion 

Based on the significant assessments made in the report it can be concluded that the overall depictions of the cash from financing activities have revealed that proceeds from borrowings has considerably decreased in 2017. It is also discerned that company has to make more repayment of borrowings in 2017, compared to 2016 and 2015. Some of the main consideration of the items under cash from operating activities have included the “Receipts from customers”, “Payments to suppliers and employees (Inclusive of GST)”, “Government grants received”, “Net placement of deposits by Autohome Inc. that are not part of cash equivalents” and income tax paid. In terms of cash generated from investing activities the various types of payment associated to “property, plant and equipment” are considered to be a part of proceeds from the advances and deposits. The different types of payments associated to “property, plant and equipment” are recognised as the amounts which are needed to conduct business activity. As per the comprehensive income statement analysis it has been depicted that the company has used the reserve for foreign Currency translation for the conversion of outcomes associated to foreign subsidiaries of “parent firm to the reporting currency”. The major disclosures from the income tax expense has been included with current tax expense, “Deferred tax resulting from the origination and reversal of temporary differences” and “Under provision of tax in prior years”.

References

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Telstra.com.au. (2018). Telstra - Our company. [online] Available at: https://www.telstra.com.au/aboutus/our-company [Accessed 21 May 2018].