Analysis Of Cash Flow, Other Comprehensive Income, And Corporate Income Tax Of Wesfarmers Limited

Cash Flow Statement

i.There are few items those are mentioned within a company’s cash flow statement and considering the same Wesfarmers Limited is selected in order to analyze the items of cash flow as per such context. The most considerable items within operating activities encompass consumer receipts, supplier payments, received interest along with borrowing costs and a few more. The receipts attained from consumers are the amounts that the company has attained from sales doe with credit. Considering Wesfarmers, the consumer receipts is observed to increase from $71,157 million in the year 2016 to $74,042 million in the year 2017 (Agrawal and Cooper 2017). In contrast, the payments made to the suppliers indicate the amounts that were purchased by the Wesfarmers on credit along with the same, this trend is observed to be increasing like the receipts attained from the consumers because of increased purchases. Interest received is termed as the amount gathered for employing money that can be repaid at a specific situation or on demand. In Wesfarmers situation a drop in the interest received has been observed in the year 2016 from $131 million to $83 million in the year 2017. This is for the reason that a part of amount is written off as bad debt (Armstrong, Blouin, Jagolinzer and Larcker 2015). Borrowing cost indicates the charge of debt obligation that might encompass the interest payments and the financing fees. In case of Wesfarmers, decrease can be observed in the borrowing cost over a year because of certain drop in market interest rates.

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Certain vital items in Wesfarmers Limited’s investing activities include payments for along with proceedings from plant, property as well as equipment. This also includes proceeds from along with investments in joint ventures and associates, subsidiary acquisition along with redemption of investment within loan notes. Payments related to property, plant and equipment include prices paid for attaining the same that is important in conducting the business activities. In contrast, such assets producer economic advantages for the companies that can be referred as property, plant and equipment proceedings. It is gathered that Wesfarmers Limited has decreased its investment within these assets in the year 2017 and the proceeds has elevated over the year because of sales of a fraction of such assets. At the time the long term assets are purchased or sold, these are realized as investments and proceeds respectively. Considering Wesfarmers Limited’s situation, considerable fraction of proceedings was gathered from associates along with joint arrangements in the year 2017. Conversely, the investment amount has remained identical in both the years. A loan note might be explained as a financial instrument that can be understood as loan contract explaining the time of the loan repayment as well as the payable interest. Wesfarmers made considerable investment in the year 2016 for the loan notes of $47 million. Conversely, it is observed to have redemption of $54 million within loan notes (Arnold, Harris and Liu 2016).

Certain specific items within financing activities include repayments and proceeds of borrowings as well as equity dividends that are offered to the Wesfarmer Limited’s shareholders. Borrowings indicate the net amount which has a lender disburses to the borrower within the terms of loan agreement. In Wesfarmers Limited situation, there is a considerable drop in the proceeds from the borrowings because of loan term extension to the debtors. In contrast to that, increased amount is paid to the banks for paying off the loans. Equity dividend indicates an annual cash flow that is offered to the equity shareholders of the company. Consideong case of Wesfarmers Limited, payment of equity dividend has been decreased in the year 2017 as it is centered on increasing the position of retained earnings (Balakrishnan, Blouin and Guay 2018).

ii.As evidenced from the annual report of Wesfarmers Limited, the three segments of cash flows are present that encompass investing, operating and financing activities. The comprehensive analysis of all these segments within the statement of cash flow for over three years is indicated under:

Analysis of Cash Flow


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Figure 1: Comparative evaluation of cash flow segments of Wesfarmers Limited over years from 2015-2017

(Source: 2018)

Considering the figure above, it is gathered that the cash flows from the operating activities is observed to decrease in the year 2015 from $3,791 million to $3,365 million to the year 2016. In addition, increase is observed to be around $4,226 million in the year 2017 (Wahlen, Baginski and Bradshaw 2014). This is for the reason that a significant cash amount is recovered from consumers in case there is dropping in the payment of income tax over the previous three years. In addition to that, the investing cash flows of the company are deemed to increase from $1,898 million in the year 2016 to $2,132 million in the year 2017. Conversely, a significant drop is gathered to be $53 million in the year 2017. This is evidenced as Wesfarmers Limited has decreased its acquisition associated with property, plant and equipment as well as subsidiaries. Finally, the company’s financing cash flows has dropped considerably in the year 2015 to 2016 from $3,249 million to $1,333 million and certain increase is significant to $3,771 million in the year 2017 (Warren and Jones 2018). This is observed because of the fact that the company experienced considerable portion in order to address its bank loans in 2017. Conversely, such increase is observed by considerable rise in operating cash flows because of which the cash base at the end of the year 2017 has elevated in the year 2017 to 2016 from $1,013 million to $611 million.

iii.The vital elements those are reported within the other comprehensive statement of income of Wesfarmers Limited encompass the foreign currency translation reserve, retained earnings and cash flow hedge reserve (Bartov and Mohanram 2014).

iv.It has been gathered that, the foreign currency translation reserve is employed in order to convert results of foreign subsidiaries of a parent company focused on a reporting currency. This is vital aspect of the financial statement consolidation process within which the functional currency of a cross border organization is initially ascertained. In addition, financial statements of a foreign organization are premeasured within a parent company’s reporting currency. Later, the losses as well as profits are recorded within the translation of currency (Chaibi, Trabelsi and Omri 2014).

Cash flow hedge reserve is used in a situation where the company is making attempts to decrease or eliminate certain exposure taking place from changes in the cash flow of financial liability or asset. This is due to the reason that certain changes are observed within specific rate of interest on floating rate debt instrument. In contrast, retained earnings indicate the net earnings portion that is not segmented as dividends to the shareholders. Moreover, in such scenario the company retains it in order to invest within paying dent or major business activities.

v.It has been evidenced that, other comprehensive income can be considered as a diversified view of net profit. Over the previous years, the changes within the company’s profits are observed to be external for its major operations or increasingly volatile that was transferred into shareholders equity. Conversely, Wesfarmers Limited employs certain other comprehensive income statement in order to offer important details on the numerical related with above mentioned items (Robinson, Stomberg and Towery 2015). Such items are reported within the comprehensive income statement. This is I order to offer comprehensive and holistic indication of drivers of business operations and conducts that might not be mentioned within the income statement.
vi.A company is generally deemed to experience several expenses such as administrative and selling expenses, research and development costs and few others among which tax expense is deemed to be an aspect. In addition, tax expense is taken into consideration as considerable liability of the company because of the federal, state and municipal government of the country. Calculation of tax expense is conducted through multiplying profit before tax with applicable rate of tax after certain considerable items are mentioned as tax liabilities and assets along with certain non-deductible items. Wesfarmers Limited is not observed to be tax exempted. Considering the annual report, the incurred the incurred tax expenses is observed to be $1,265 million in the year 2017 and in the year 2016 it is observed to be $631 million (Schaltegger and Burritt 2017). In addition, the tax rate that is applicable by Wesfarmers in consideration to its previous annual report is observed to be 30%. Through employing such tax rate, Wesfarmers tax rate is observed to be 30%. Through employing such rate, Wesfarmer Limited’s tax expense in the year 2017 is observed to be $1,241.40 million ($4,138 million x 30%) as well as $311.40 million ($1,038 million x 30%) in 2016 (Laitinen 2018). Therefore, it might be gathered that certain vital tax expenses of the company was the above state numerical due to the increase in income for the company.

vii. Considering the yearly report of Wesfarmers Limited in the year 2017, the profit before tax income of the company is observed to be $4,138 million that was $1,038 million in the year 2016. In addition, the tax rate that is employed by Wesfarmers Limited and published within the yearly report is observed to be 30%. Through employing such tax rate, tax expense of the company in the year 2017 is observed to be $1,241.40 million ($4,138 million x 30%) and $311.40 million ($1,038 million x 30%) in 2016. Conversely, the experienced tax expense focused on the annual report is observed to be been $1,265 million in 2017 and $631 million in 2016. Considering the same, the standard tax expense along with amount that is really experienced is not observed to be similar to one another. Wesfarmers Limited considered to include or exclude few items within the total tax expense hat has resulted in observing difference in amount. Among such items within the non-deductible expenses is important to attain a taxable profit. Another item is the charge of distinct tax rate for the subsidiaries. For example, tax rate within Australia is 30% and in the New Zealand it is 28%. Another item is deferred tax asset from which Wesfarmers Limited has attained considerable tax advantages. Finally, non-assessable income is another item that is observed in case of company’s changing tax rate.

Other Comprehensive Income Statement

viii.Deferred tax rate indicate a situation in which the companies either pay increased taxes and the taxes are paid in advanced for the financial assets. Deferred tax liabilities indicate a condition in which difference is gathered in profit and tax carrying amount of the company. In Wesfarmers Limited situation, deferred tax assets are observed to have $971 million in 2017 that was $1,042 million in 2016. In addition the deferred tax liabilities are evidenced to be $722 million in 2017 that was recorded to be $611 million in 2016. Realization of deferred tax assets is conducted due to additional depreciation payment caused by changes in taxable depreciation rate and related amount. Recognition of deferred tax liabilities is carried out due to temporary variations in business profits within which decreased taxes are incurred in the year 2017.

ix. Payable income tax is a considerable aspect for all the business organizations within Australia. The yearly report of Wesfarmers indicates that the payable income tax for the firm is observed to be $292 million in 2017 that was $29 million in 2016 (Ishibashi, Iwasaki, Otomasa and Yada 2017). Conversely, certain differences are observed between income tax expense along with payable income tax and the major reason behind it is deferred tax assets. There are certain examples in which additional tax expenses are paid in comparison to the real ones. The payment of additional tax amount leads to such difference. Another rule might be evidenced in the financial as well as tax accounting rules. In such situation, it is significant to consider depreciation example. As there are changes in depreciation rates, its treatment is different in financial as well as tax accounting. Therefore, the overall depreciation expenses might be increased or decreased. These are the major reasons that differences are present among the income tax payable and expense.

x.Focused on Wesfarmers Limited annual report for the year 2017, it can be indicated that the company has reported tax expense within income statement along with its cash flow statement. Conversely, both the amounts do not match with one another in the financial statements. Within the income statement, the experienced tax expense is observed to be $1,265 million in 2017 and $631 million in 2016. In contrast, within the cash flow statement, the paid income tax is observed to be $951 million in 2017 and $1,009 million in 2016 (Gupta and Lynch 2015). Certain reasons have been identified for this difference that includes the tax expense in the income statement is computed by taking into account tax expense as well as related items. On the other hand, tax expenses within the cash flow statement come within the operating cash flows. Income tax payment is considered by Wesfarmers Limited in the form of recent asset. Conversely, within the cash flow statement, decline in the income tax expense aspects has been gathered that indicates the utilization of cash. This indicates that it has decreased certain tax expense items before they are reported within the statement of cash flows.

Analysis of Comprehensive Income Statement

xi.Focused on analysis of tax treatment within Wesfarmers Limited, no confusing or surprising items were observed. In addition, all the regulations mentioned within Australian Taxation Law are complied with to carry out the company’s tax treatment. Moreover, it has offered necessary briefings for supporting distinct taxation factors related to taxation that includes the rate of tax, income tax payable, current tax liabilities, deferred tax assets and liabilities along with other related items (Goh et al. 2016). Among them, the elaboration regarding the difference among the overall tax expenses is the most considerable aspect. In addition, the five considerable impact able dynamics responsible for developing changes in the tax expense might be observed.

Every important working notes related with financial statements is offered to support the treatment of numerous items. Realization of deferred tax assets are conducted due to additional depreciation payment because if changes in taxable rate of depreciation as well as related amount. Reorganization of deferred tax liabilities are carried out due to temporary variations in company profits in which decreased taxes are paid in 2017. Such interesting impactful dynamics has facilitated in enhancing the understanding as well as business taxation knowledge. Therefore, such analysis might facilitate an individual in attaining knowledge focused on the company’s tax treatment activities.


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