Cash Flow Statement

In the present report, Woolworth group has been selected for analysing whether the financial statements that are presented by the company are in accordance with the accounting standards and the provisions of the corporation act 2001. The reports provides a detailed analysis of the various segments of the annual report.

The cash flow that has been prepared by the entity is based on the direct method of preparing cash flow statement. The first time being the receipts from the customers confirms the notion. The cash flow statement fo the company has been divided into three categories like the operating activities, investing activities and the financial g activities (Bhasin, 2015).

the constituents of the cash flow statement of the company are as follows:

1. Receipt from customers- this is the amount that represents the amount of cash flow that the company has received from its customers from the sale of the products and services that were reign produced by the entity. It can be seen that the receipt from the customers amounted to 65329.8 and 65498.9 million in the year 2016 and 2017 respectively. This signifies that the collection of the company from the customers has increased over the period of one year (Jefrey, 2018).
2. Payments made to the suppliers of the company- this amount represents that amount that the company has paid to the suppliers of the company from whom the company had purchased the various raw material and other things that are going to be used in the process fo carrying out the business of the entity. it can be seen that the amount that is paid to the suppliers of the company amounted to 61834.5 and 61474.8 million in the year 2016 and 2017 respectively. this suggests that the payment that has been made to the suppliers of the company has decreased over the period of one year.
3. Net interest paid- this refers to the payment that the company has made to the third parties and the financial institutions from which the company has taken loan. The item also contains the interest that is being received by the borrowing that has been given by the company to the other entities and the interest charged from the customers due to late payment of the invoice (Tahat et al., 2017). The net interest is received after deducting the nett interest expense of the company from the interest income fo the company. the net interest of the company amounted to 289.3 and 234 in the year 2016 and 2017 respectively. It can be observed that the interest that is paid by the company has reduced over the period of last one year.
4. Income tax paid- this represents the amount that is being paid by the company to the government by way of taxes that is levied on the income that is generated by the company. it can be seen that the income tax expense of the company amounted to 848.5 and 668.1 respectively for the year 2016 and 2017. It can be seen that the amount paid in respect of the taxes is reducing over the period of one year (Heese et al., 2015). The reason for this could be that the profits of the company have reduced over the period of one year.
5. Proceeds from the sale of property, plant and equipment- this represents the amount that is generated from the sale of the property, plant and equipment of the company.
6. Payments for the property, plant and equipment (property development) – this amount represents the amount that is paid by the company in respect of the amount that has been paid by it for the development of the property, plant and equipment.
7. Proceeds from the sale of subsidiaries and the investments that are being made by the company- this  amount represents the amount that has been recovered from the sale of the subsidiaries and other investment that are being held by the company.
8. Proceeds from borrowings- this is the amount that is realised from the borrowings that are being made by the company.
9. Repayment of the borrowings- this represents that amount that has been paid by the company for the purpose of repaying the debt that had been taken up by the company.
10. Dividend paid- this represents the amount that has been made by the company in respect of the shares that are being issued to the shareholders of the company (Balakrishnan et al., 2016).
11. Dividend paid to non- controlling interests- this represents the amount that has been p-aid to the shares held by the shareholders having non-controlling interest in the entity.  

The three broad categories of the cash flow statement are comprised of the operating activities, investing activities and the financing activities. The operating activities of the company comprises of the core revenue generating activities of the entity. these comprise of the revenue that is being generated from the sale of products and services of the company. The payment that is being made to the suppliers of the entity and the income tax that is being paid by the company. it is seen that the cash flow from the operating activities of the company amounted to 2357.5 and 3122 respectively for the year 2016 and 2017 respectively. it shows that the cash flow from operating activities of the company has increased significantly (Maas et al. 2016).

the investing activities of the company are related to the sale and purchase of the fixed assets of the company. the investing activities of the company is comprised of proceeds from the sale of property, plant and equipment, payments for the intangible assets of the company, proceeds from the sale of subsidiaries and the purchase of the investments by the company. it can be seen that the cash flow from the investing activities of the company amounted to (1266.7) and (1431.4). it can be concluded that the cash outflow of the company in respect of the investing activities have increased over the period of one year.

the financing activities of the company comprise of cash flow in respect of the sources from where the company arranges its finance. The financing activities of the company are comprised of the issue of shares, payment of dividend, taking of borrowing by the company and the repayment of the borrowing. It can be seen that the cash flow from financing activities amounted to (1474.9) and (1729.3) respectively for the year 2016 and 2017. This shows that the cash outflow of the company in respect of the financing activities of the company has increased over the period (Watson, 2015).  

The statement of other comprehensive income includes items that are generally excluded from the computation of net income under the income statement. The above figure is the “Other comprehensive income statement” in the annual report of Woolworths. It can be seen that there are various items that are included in the statement of other comprehensive income. The other comprehensive income statement of the company includes profit and loss for the period. In the annual report for the year 2017 the profit or loss amount reporter dies $ 1593.4 million and in the year 2016 company reported a loss of $ 2347.9 million. The movement in the Fair value of cash flow hedges and its income tax effect are included under the heading Hedging Reserve in the other comprehensive income statement of the company. In the year 2016 the company reported negative movement in the fair value of cash flow Hedges for an amount of $2.7 million (Stein et al. 2017). The income tax effect for the above movement in the year 2016 is $1.7 million. In the year 2017 the movement in the fair value of cash flow Hedges has been positive of $3.8 million. The income tax effect for the same transaction has been $ 1 million. The foreign currency transaction reserve (FCTR) is also reported in the other comprehensive income statement of the company. The movement in translation of foreign currency operation taken to equity is reported as $207.9 million in the year 2016 and $-3.9 million in the year 2017. The income tax effect of the above transaction is $24.5 million in the year 2016 and $3 million in the year 2017. The movement in the fair value of investment in equity securities are also recorded in this statement of other comprehensive income. In the year 2016 the amount for the above mentioned item is $13.5 million and in the year 2017 the amount is $2.2 million. The actuarial gain or loss on defined benefit superannuation plans are also recorded under the statement of other comprehensive income. In the year 2016 the amount reported was -$5.6 million and in the year 2017 the amount reported was $3.2 million. The corresponding income tax effects are also recorded on this statement (Uyar & Boyar, 2015).

Other Comprehensive Income Statement

It can be seen that there are primarily 3 items in the statement of other comprehensive income. The nature of these items are discussed in this section of the report. The hedging reserve amount includes that portion of change in the value of cash flow hedging that is related to the instrument of hedged transactions that has not yet occurred. The Foreign currency translation reserve includes the difference that arises due to foreign currency on all the items of financial statements that relates to foreign operations. The gain or losses on hedging instruments that are designated as hedges for net investment in foreign operation are also included in the foreign currency translation reserve (Killian & O’Regan, 2016). The revaluation of investment in equity securities gives rise to asset revaluation reserve. The equity securities are measured at fair value and any changes in the value are recognised in the statement of other comprehensive income.

This statement of other comprehensive income helps the user to gain a more detailed understanding of the financial performance of the entity. The items that are included in other comprehensive income does not directly depend upon the operational activity of the organisation. Therefore, these items are excluded from the computation of net income so that actual profitability and operational efficiency of the organisation could be determined more accurately (Kraakman & Hansmann, 2017).

The consolidated statement of profit and loss of the company indicates that the income tax expenses in the year 2016 was $ 486.4 million and in the year 2017 it was $650.4 million.

In the year 2016 the applicable tax rate for the companies was 30% and in the year 2017 the applicable tax rate was 27.5%. In the year 2016 the company has made a profit before income tax of $1249.3 million. Therefore by applying the income tax rate of 30% the income tax expenses of the company should have been $374.9 million (Latan et al., 2018). The income statement shows that the company has made a profit of $2132.4 million in the year 2017. On applying the applicable taxes 27.5% the income does expenses comes to $ 586.41 million. On comparing with Income Tax expenses reported it can be seen that the amount of tax expenses computed and the amount reported are different.

On analysing the balance sheet of the company it can be seen that the deferred tax asset reported in the year 2016 was $497.7 million and in the year 2017 it was 372.3 million. There are no deferred tax liability that have been reported in the balance sheet of the company. The deferred tax asset has arisen because the income tax reported is lower than the actual amount of income tax paid to the income tax authority (Pereiro, 2015).

The company does not have any current tax assets that are reported in the balance sheet. On the other hand, the company has current tax liability in both the year 2016 and 2017. In 2016 the amount of current tax liability was $39.5 million and in 2017 it was $80.9 million. This amount or not the same as income tax expenses amount because current tax payable indicates those income Tax expenses that are not yet paid (Francis et al., 2015).

Accounting For Corporate Income Tax

The income Tax paid amount as shown in the cash flow statement is different from the income tax expenses amount provided in the income statement. In the year 2016 in the cash flow statement the income tax paid amount is $848.5 million and in the year 2017 the income tax paid amount is $ 668.1 million (Gregory, 2018).

On analysing the annual report of the company it can be seen that the expenses are deducted from the revenue of the company to compute the net income. The income tax expenses are deducted from the net income to computer net profit after tax. However, it has been an interesting finding to know that the income Tax expenses as shown in the income statement cannot be computed by applying the normal tax rate on the net income (Cao et al., 2015). It is because the taxable profit is different from the accounting profit. In determining the taxable profit there are certain expenses that are disallowed so the computed profits are different.

Conclusion:

Based on the above discussion it can be concluded that the company has prepared financial statement in accordance with the applicable financial reporting framework. The company has also complied with all the relevant legislations the necessary for preparing the annual report.

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