The paper gives a brief discussion on the different elements of accounting that are essential to be maintained in a corporate sector. The annual report of the company Catlex Australia Limited shows the different statements of their financial report. This paper describes the financial statement, tax report and different other particulars important for the company to maintain.
Caltex Australia Limited is one of the largest petroleum brands that is operated in 60 different countries in the Asia Pacific, Middle East and Southern Africa. The organisation was established in 1936 which was a joint venture between Standard Oil and Texas Company in order to sell oil from Saudi Arabia. In the present scenario, the organisation is providing different services to customers such as on-site refuelling, bulk deliveries, marine fuelling, vehicle's engine management, soil remediation and more. The assignment is going to focus on discussing different factors related to its financial statements such as equity, assets, liabilities, income tax expense and more.
Discussion of the items of equity available in annual report of Caltex Australia Limited
Changes in equity
(Source: Microsites.caltex.com.au, 2018)
Total equity of Caltex Australia Limited up to 31st December 2016 was $2810215. Different items of equity of the Caltex Australia Limited are following:
The value of issued capital of Caltex Australia Limited was $524944 at the end of 31st December 2016. It is the share capital which issued to the shareholders of the organisation. It is the portion of the organisation's authorised capital, which is the maximum capital Caltex can issue under its article of association (Zadek et al. 2013). The issued capital can be changed in every year because the shared capital of an organisation can be purchased by different number of shareholders.
Treasury stock: The value of treasury stock was -$344 up to end of 2016. It is a kind of stock that can buy by an organisation by decreasing the outstanding stock amount in the open market. The value of treasury stock can be changed because, in open market, the value changes over time.
Foreign currency translation reserve: The value of foreign currency translation reserve was $15620 at the end of 2016. A foreign operation can be reclassified as the non-integral foreign operation, the differences of exchange can arise during translation of non-monetary assets and it is documented in foreign currency translation reserve. The value of it can be changed along with changing value foreign currencies.
Hedging reserve: The value of it was -$1267 at the end of 2016. It is used to balance the profit and loss account and the value of it can be changed due to changing value of the account.
Equity compensation reserve: The value of it was -$22308 at the end of 2016. This type compensation can be taken through different forms such as performance share, options, restricted stocks and more. The value can change the rate of stocks and shares.
Retained earnings: The value of retained earnings was $2280754 at the end of 2016. It is the percentage of net earnings of an organisation not paid as dividends and retained for reinvestment for the business or to pay debt. The value of it can be changed due to paying capability of an organisation (Warren and Jones, 2018).
Non-controlling invest: The value of it was $12816 at the up to the end of 2016. It is a part of equity ownership in the subsidiary which is not associated with parent organisation that has controlling interest. The parent organisation put the subsidiary's financial result on its own. The value of it can be changed due to changing equity of the subsidiary.
A tax expense of a business organisation is the liability owed to the government of a country in which it is operated. The tax expenses are generally documented with the income statement of a business organisation. The value of it is deducted from the revenue earned by the organization in a certain financial year (Agrawal and Cooper, 2017). The tax expense differs from the tax liability in which tax liability needs to be paid in future by an organisation but the tax expense needs to be paid in every financial year. The reported income tax expanse of Caltex Australia Limited was $253283 at the end of 2016. Therefore, the organisation needs to pay a large amount of income tax expense for it operational activities in 2016. It is involved with different duties, leverage tax, income paid and much more and the organisation needs to pay those in order to carry out its business activity ethically and efficiently. In 2015, the organisation was paid $217025 as income tax expense and is comparatively lesser than 2016. Therefore, the organisation expands its business activities and for this reason, it paid more tax in 2016.
Discussion of whether the tax rate times Caltex’s accounting income
The tax rate of Caltex Australia Limited can be determined through corporate tax that is associated with the business organisation by the tax regulatory bodies. The organisation’s implied tax rate is (863763/253283)*100 which is 34.1 percent. The revenue of the organisation is much higher than the total tax expense. Therefore, Caltex Australia Limited needs to pay huge amount of tax every year due to its operational activities and the tax rate is changed along with it every year. In the country, the corporate tax is 30 percent and the compared trade in the same industry of the organisation is lesser than the organisation's rate of payment. Therefore, the organisation is paying higher tax in order to support the requirements formulated by the tax regulatory body of the country. Caltex Australia Limited is paying additional tax because it is earning from different business activities in the country along with its investment in different projects and organisations. Apart from this, the deferred tax liability is another factor that results invariance in tax rates for the organisation (Bebbington et al. 2014). It is also a reason for the enhancement of payment of tax by the organisation in current years. Therefore, it can be said that Caltex Australia Limited has paid higher tax rate compared to the corporate tax
If the tax paid by an organisation exceed the certain amount of taxation policies, then amount paid by the organisation is treated as deferred tax liabilities and if it does not exceed the certain amount, then it is treated as deferred tax assets (Bevis, 2013). The deferred tax asset of the Caltex Australia Limited $238083 at the end of 2016. Therefore, the organisation needs to pay high tax in the year of 2016 and it could not reduce the provisions associated with the taxation policies. Every business organisation needs to identify its deferred tax provision because it is helpful to evaluate its tax expense. The deferred tax of Caltex Australia Limited can be identified by using liability method of the balance sheet that is helpful to provide temporary variance between the assets and liabilities in order to calculate the financial expenditure of the year of 2016. The accounting standard of Caltex Australia Limited is the reason for difference between the tax paid and current tax payable to the organisation. Caltex Australia Limited has taken care of its present and previous tax paid along with its due tax. The tax liability of the organisation influence the value of the deferred tax and estimated through assumed value. However, the organisation has deferred tax asset which can be profitable for the organisation in long run. In the current scenario, the organisation is experiencing profitability through its total deferred tax assets.
Cash flow statement
According to the cash flow statement of Caltex Australia Limited, the current assets and liabilities of the organisation were $2143655 and $1502456 at the end of 2016. The income tax payable by the organisation is lesser than the income tax paid in 2016. The financial accounting standard used by Caltex Australia Limited in order to calculate the taxation can differ. The division of it is related to the performance of the organisation in a certain financial year in its financial reporting. Caltex Australia Limited needs to go through different realistic and unrealistic accounting practice in its previous years which is necessary to run the organisation. The income statement of the organisation shows the income tax expense of the organisation and the financial position of the organisation describes that Caltex Australia Limited has paid tax more than the actual rate of tax. The organisation is focused on depreciation of the assets that affect on this procedure. The tax expense of the organisation is calculated by using methods of calculation of tax and fixed tax rate. The tax payable also needs to be associated with this method of calculation (Atanasov and Black, 2016). Therefore, the articulation of tax expense may not be expensive for an organisation and it can be incurred by that organisation for effectively run the business activities. Caltex Australia Limited needs to calculate the expenditure related to its tax in order to pay it to the regulatory bodies of the country in which it is operated. Therefore, the reason for calculating the tax payable and tax expense of the organisation is different in which one focuses on accumulating the amount needs to pay by the organisation and other needs to report the tax expenditure.
Comparison of whether the income tax expense and income tax paid are same to not in the income statement of Caltex
According to annual report of Caltex Australia Limited, the tax expense of the organisation was $253283 and paid income tax of the organisation was $13595 at the end of 2016. Therefore, there is a huge difference between tax expense and tax paid by Caltex Australia Limited. The accounting principles describe that an organisation can depreciate the value of its assets by using different methods which need to be rational and systematic. Depreciating the asset can be done by maintaining different guidelines that can bring discrepancy in taxation standard and accounting system and it can result enhancement of the tax liability related to business organisation. In this context, Caltex Australia Limited needs to follow two separate methods in order to calculate those. One of those methods can be based on the accounting standard of the country and another method needs to compile with the taxation system of the organisation. This is the reason that the tax paid by the organisation differs from the value of the tax expense. The tax expenses need to be calculated by an organisation in order to account the expenditure related to the tax and on the other hand, tax payable needs to be paid in future (Kravet, 2014). Therefore, it can be said that the tax payable is realistic for an organisation and tax expense needs to be made in order to report the expenditure related to the tax of the organisation.
Evaluation of the Caltex’s method of treating tax assets or liabilities in its financial report
Every business organisations have different methods of handling the tax assets and tax liabilities related to it. Caltex Australia Limited has implemented a process through which it treats its tax liabilities in every financial year. In this process, the organisation is focused on tax expense in the income statement, cash paid in the cash flow statement, tax payable in the taxation accounts and more. The current tax can be considered as tax payable by Caltex Australia Limited if the organisation does not pay it till now. The organisation follows certain methods in order to calculate the tax payable and tax expense and in order to do so, the organisation considers different factors related to the taxation of it. In order to depreciate the value of the assets, Caltex Australia Limited needs to consider an ideology that is related to its taxation system that enables the organisation to valuation of its tax payable properly. The organisations are generally calculate the asset depreciation rate in accordance with its taxation system and based on its financial activities in a certain financial year. According to the annual report of Caltex Australia Limited, all the factors that can affect the tax rate are considered by the organisation in order to calculate its tax assets and tax liabilities in a certain financial year. However, the organisation needs to consider different other factors such as changing rate of corporate tax, provision calculation and more (Preiato et al. 2015). Caltex Australia Limited consider its tax liabilities as a serious factor and take care of different factors in order to maintain the amount of taxation in coming future. A simplified taxation system is follow by Caltex Australia Limited in order to calculate its tax expense, tax payable, paid tax and others. This is helpful for the organisation to report the tax expenditure and make financial statement every year.
Caltex Australia Limited is an organisation that provides different services and operated in different countries in the world. The organisation needs to pay huge amount of tax in the year of 2016 because of its different business activities. The organisation needs to identify its deferred tax provision in order to identify its tax expense. The organisation follows certain methods of calculating tax liabilities by focusing on different factors that can affect the expenditure related to the taxation system of the organisation.
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