Executive vi. Difference in Income Tax Expenses. 7

Executive
Summary

The main purpose of this report is to
analysis the financial Statements of Industria Reit Ltd and comment on the
reports. The report will identify the different equities which are mentioned in
the financial records and state the causes of changes which may be in the
financial statement. The report will be focusing on the tax treatments of the
company and analyse the company’s tax expense in comparison with previous year
figure. The report will then conclude with an overall understanding how company
handle tax transactions.

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Table of Contents
Introduction. 4
Overview of the Company. 4
i.       Types
of Equity. 4
ii.      Tax
Expenses of Industria Reit 5
iii.         Tax
expenses and Tax Policy of Industria Reit 5
iv.         Deferred
Tax Assets/Liabilities of Industria Reit ltd. 6
v.      Income
Tax Payable. 7
vi.         Difference
in Income Tax Expenses. 7
vii.        Insights
of Income Tax of Industria Reit ltd. 7
Conclusion. 8
Reference. 9
 

 

 

 

 

 

 

 

 

Introduction

Corporate
Accounting may be defined as the preparation and presentation of financial
information of a company in a financial report. The financial reports include
balance sheet, a statement of profit and loss account, cash flow statements
(Dyreng, Mayew and Williams 2012). The use of a financial statement is to analyse
the financial performance of the company. In other words, a financial report is
a summarised report which contains the financial data of a company. The
financial reports are prepared following certain established principles,
standards and conventions (Weil, Schipper and Francis 2013).

Overview of the Company 

            Industria
Reit is an Australian listed company which is engaged Real Estate investment
business. Its headquarters is situated in Australia. The company has businesses
in Melbourne, Sydney and Adelaide. The total valuation of the company as per
recent estimates is around $ 638 million.

i.                   
Types of Equity

            Equity
refers to different types of stocks and securities which exists in the stock market
and which represents the ownership interest in the company. Equity is a term
used to determine securities or a group of securities which gives the owner of
such securities, right of ownership over the company.

            The
different types of equity as shown in the balance sheet of Industria Reit Ltd
for the year 2015 and 2016 are discussed below:

1.     
Contributed Equity:  This refers to the equity of the company
which is acquired from the public. This includes the capital which is collected
from the public by issue of shares and other securities. In other words, it
reflects all the stock which the shareholders have bought directly from the
company which is issuing the shares. The contributed equity of the company was
$165674000 in 2015 which decreases to amount of $165096000 in 2016 which shows
that there is a decrease in contributed equity from the past year. The reason
for decrease in the contributed equity from last year is due to the buyback
programs which the business has undertaken.

2.     
Retained Earnings and Accumulated losses:
Retained earning refers to that part of profits which are kept aside by the
business for either reinvesting in business or distribute it as profits. It
refers to a condition where the company has distributed more dividends and has
incurred more net loss over its profits (Chadha, Corrado and Meaning 2012). In
such a case retained earnings becomes negative and the losses are accumulated
and shown in the balance sheet until these are set off and positive retained
earnings can be gained. The company has accumulated losses of $384000 in 2015
and this becomes positive figure and shows retained earnings of $10922000.

ii.                 
Tax Expenses of Industria Reit

            The
company does have any current tax expenses in the year 2016 which was in the
$74000 in 2015. The company has followed tax policy as per the requirements of
AASB. The tax expense figure as shown in the financial statements is further
bifurcated in deferred tax expenses and current tax expenses (Dhaliwal et al. 2013). The deferred tax of
Industria Reit which is as $ 78000 in 2015 and $ 234000 in 2016.

iii.               
Tax expenses and Tax Policy of Industria Reit

The tax expenses
as shown by the financial statements are in accordance with relevant tax laws
and rules. There is no current tax expenses of the company for the present year
2016 and only has a deferred tax benefit of $ 234000. The current tax expenses
of 2015 were $ 74000 and the deferred tax was $ 78000.  The company charges taxes at the rate of 30%
as per the relevant rules of Australia. The company does not have any tax
expenses for the current year as the profit which the company earns from
ongoing operations amounts to $ 31027000 and the company also has control over a
non-taxable trust entity which has a loss of $ 31917000 which will be set off.
After the set off is done the company has a net loss figure of $ 890000. The
tax rate is charged at the rate of 30% on the figure of $ 890000 which results
in the tax benefit figure of $ 267000 as shown in the notes of accounts in the
financial statement of Industria Reit. Industria Reit Ltd is in accordance with
the corporate tax rules of the country therefore the figure of current tax
expenses shown is correct as per the tax rules (Dong, Ryan and Zhang 2014).

iv.               
Deferred Tax Assets/Liabilities
of Industria
Reit Ltd

            Deferred
tax asset arises when the company has paid taxes in excess amount than what was
required (Harrington, Smith and Trippeer 2012). The company can claim tax
relief for the overpayment of taxes in future. This relief which the company
receives is treated as an asset of the company. This is a type of prepaid
expenses and therefore these are treated as assets. On the other hand, deferred
tax liabilities are completely opposite of deferred tax assets (Harrington,
Smith and Trippeer 2012). This happens when the tax liability paid by the
company is less as compared to what is to be paid as per accounting income.

            Deferred
income tax is provided on all non-permanent differences which arise on
reporting date between the tax charged on assets and liabilities and their
respective amounts for financial reporting purpose as per company’s
requirements and policy (Laux 2013). The deferred tax liability of the business
for the year 2015 is $ 2069000 and the same has increased to $ 2303000 in 2016.
The main purpose of recording deferred tax assets and liabilities is to
acknowledge the difference in timing of when the tax was recognized in the
financial statements and when the tax becomes effective. Another variation for
which deferred tax assets and liabilities may arise is due the difference in
treatment of depreciations in tax and accounts. The rate charged in tax may be
different then what is charged as per accounting.

v.                 
Income Tax Payable

            There
is no current tax asset or liability in the balance sheet as shown in the
financial statements for the year 2016. However, there was income tax
recoverable of $ 82000 in the year 2015. This figure is shown in the other assets
in the balance sheet for the year 2015. The notes to accounts show that other
assets contain an income tax recoverable of $ 82000 for the year 2015.

vi.               
Difference in Income Tax
Expenses

            The
cash flow statement shows that there is tax refund of $ 71000 in 2016 and the
tax paid in 2015 was $ 437000. There is a difference between the figures shown
in cash flow statement and figures shown in profit and loss account.  The company may be following the policy of
paying tax in quarterly basis or in half yearly basis. The company may have
just followed this policy and paid for a quarter or half year and thus the
difference may have happened (Taylor and Richardson 2012). Another reason may
be that the income tax expense as shown in the profit and loss account contains
the current tax liability which the company incurs in current year as well as
deferred tax liability which arises due difference in treatment of transactions
in tax and accounts.

vii.             
Insights of Income Tax of Industria Reit Ltd

            The
analysis of the financial reports of Industria Reit Ltd shows that the company
follows the AASB 112 for estimating the taxes of the company. The tax rate and
laws which the company follows are in force and active during the reporting
date. The company maintains deferred tax liabilities which can be adjusted
against tax which are to be paid in the future years. Deferred income tax
assets are recognised in the financial statements for all deductible temporary
differences, carry-forward of unused tax assets and unused tax losses. The
company follows tax consolidation structure for its operating business and non-taxable
trust.

Conclusion

            The
main aim of this assignment is to analysis the annual financial report of
Industria Reit. The assignment will be covering the different types of equity
which the company has shown in the balance sheet and cover the areas of how
much tax the company pays and if there is any deferred tax or current tax
assets in the financial report of the company. 
The report also states the tax rate at which the company is charged with
and the reasons as to why the tax paid as shown in cash flow statement differs
from the tax payments in the profit and loss statement.

 

 

 

 

 

 

 

 

Reference

Chadha, J.S., Corrado, L. and Meaning, J.,
2012. Reserves, liquidity and money: an assessment of balance sheet policies.

Dhaliwal, D.S., Kaplan, S.E., Laux, R.C.
and Weisbrod, E., 2013. The information content of tax expense for firms
reporting losses. Journal of Accounting Research, 51(1),
pp.135-164.

Dong, M., Ryan, S. and Zhang, X.J., 2014.
Preserving amortized costs within a fair-value-accounting framework:
Reclassification of gains and losses on available-for-sale securities upon
realization. Review of Accounting Studies,19(1), pp.242-280.

Dyreng, S.D., Mayew, W.J. and Williams, C.D.,
2012. Religious social norms and corporate financial reporting.Journal of
Business Finance & Accounting, 39(7?8), pp.845-875.

Harrington, C., Smith, W. and Trippeer, D.,
2012. Deferred tax assets and liabilities: tax benefits, obligations and
corporate debt policy. Journal of Finance and Accountancy, 11,
p.1.

Harrington, C., Smith, W. and Trippeer, D.,
2012. Deferred tax assets and liabilities: tax benefits, obligations and
corporate debt policy. Journal of Finance and Accountancy, 11,
p.1.

Laux, R.C., 2013. The association between
deferred tax assets and liabilities and future tax payments. The
Accounting Review, 88(4), pp.1357-1383.

Taylor, G. and Richardson, G., 2012.
International corporate tax avoidance practices: evidence from Australian
firms. The International Journal of Accounting, 47(4),
pp.469-496.s

Weil, R.L., Schipper, K. and Francis, J.,
2013. Financial accounting: an introduction to concepts, methods and
uses. Cengage Learning.