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HI5020 Corporate Accounting For Poultry And Other Agricultural Products

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HI5020 Corporate Accounting For Poultry And Other Agricultural Products

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Course Code: HI5020
University: Holmes Institute

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Country: Australia

1. Why have these items not been reported in Income Statement/Profit and Loss Statements?2. Provide a comparative analysis of the items shown in the other comprehensive income statement section for the two companies. If these items were included in the income statement / profit and loss statements of each company, how would the profit attributable to shareholders of the company be affected?

This report has reflected the different segments of both the companies so that a comparative analysis can be performed and it can be determined as to which company has witnessed extreme changes in comparison to the last year. In relation to this, Seafarms Ltd has been chosen that is listed on the ASX and is a major producer of poultry and other agricultural products. The company is primarily operating throughout New Zealand and Australia and intends to diversify its affairs throughout the world. In contrast to this, Woolworths Ltd is a major retailer that is undertaking its activities on a diversified scale and is also listed on the ASX.
Owners Equity 

It is observable from the companies’ annual reports that the total equity of Woolworths has been disclosed at $10849 million for the current year. In contrast to this, such segment reported an amount of $9876 in the previous year that reflects increment in such segment. This is because Woolworths has many elements in its financial statements and that can be accounted for by users in their decision-making process. Nevertheless, the company’s contributed equity has also experienced an increment in comparison to the last year and the reason behind this can be attributed to the issue of fresh shares that has been facilitated in the reinvestment and employees’ long-term incentives (Needles & Powers, 2013). Nonetheless, the company’s reserves have also declined owing to the costs associated to the share-based program. Furthermore, variations in non-controlling interests and retained earnings can be because of rise in net profits even though dividend payments had been incurred during the years.

When it comes to Seafarms, the overall equity declined from the range $32718620 in June 2017 to $ 15842803. The increment is due to the various components of equity that is contained from the annual report of the company. The increment in the contributed equity happened due to the share capital issue (Seafarms Group, 2017) The company’s reserves have experienced a major increment during the year that is a positive sign of its performance. This is because employees of the company had attained performance rights, lapsed options, etc that resulted in such increase. Further, the company has also reflected that its retained earnings had decreased during the year and this is because it had immense losses during the year. As per the year ending 30th Jun 2018, there was increment in the accrued losses that was $19947283 that added to the retained losses. 

From the previously mentioned analysis, it is visible that the company has been in a better place in comparison to Seafarms Group especially in relation to its position of debt and equity. The major cause behind this fact may be because the company has additional equity resources that are greater than the other company (Seafarms Group, 2017). Besides, it is also observable that Woolworths has exerted extra focus on equity financing and has not relied too much on debt financing unlike Seafarms. In addition to all these, the company’s entire investments have also increased in the current year in comparison to the past tenure.

Cash flow Statement

It is notable from the financial statements of Woolworths that there are various elements of statement of cash flow that is disclosed in the annual report. In relation to these elements, cash flow from all operating activities is the first element that has formed part of the company’s cash flow statement. This element comprises of income expenses and other routine costs that has been incurred by the company in the current year (Woolworths limited, 2017). However, it is observable that such element has experienced a major decline in the present year when compared to the past tenure. Hence, in association with this, since the requirements of suppliers and employees necessitated increased payments on the part of the company, this segment has decreased as a result. Further, cash flow from investing activities forms the second element of the company’s cash flow statement. In relation to this, the same has experienced a decrease when compared to the previous year and this is because enormous purchases were undertaken in the present year and there were lesser returns attained from sale of (PPE) property, plant, and equipments. Further, cash flow from financing activities forms the third and last element of the company’s cash flow statement. This element has also declined in the present year in comparison to the last year. Moreover, even though the company had undertaken dividend payments in the current year, the outstanding obligations have not been properly addressed that is a negative indicator and that has resulted in such deterioration (Deegan, 2011).

When it comes to Seafarm, the cash flow statement comprises of the following:
Cash outflow or inflow from overall operating affairs – Seafarms’ cash flow statement has portrayed that there are items like general or standard costs that the company has incurred. In addition, the company has disclosed that its operating activities have increased in the present scenario that has resulted in the exaggeration of outflow of cash towards such activities. Besides, it has been reflected that receipts from customers failed to surpass the expenses that had been undertaken to address the needs of employees and suppliers.
Outflow of cash for the company’s investing activities has maximized in the current phase. This is because the company’s expenses towards acquiring fixed assets like PPE and other machineries had been incurred. Furthermore, there are other assets that have also incurred extreme costs on the company’s part.
The inflow of cash in association with the company’s financing activities has decreased in the present year. In addition, the company’s borrowings have also enhanced in this year when compared to the past tenure. Moreover, the company had also encountered a maximization of consideration owing to issue of fresh shares in the present scenario. Therefore, its cash and cash equivalents have deteriorated during the year and that is a negative indicator of its overall performance.
Comparative analysis

Woolworths Ltd

The net cash from the operating activities of the company have decreased in the present year because enormous payments were undertaken towards suppliers and employees when compared to the previous year. In addition, the cash flow from investing activities of the company had also deteriorated and the major cause behind this can be due to lesser returns from sale of fixed assets and larger purchases in the current year when compared to the last year. The company has also utilized fewer resources in association with its financing activities that has resulted in the decline of such segment as well.

Insight on such analysis

It is observable from the cash flow statement of the company that it has witnessed enhancements in its cash equivalent and cash at the end of the year that sheds light on growth and development on its part.
Comprehensive statement of income

The company has incorporated various items in its statement of comprehensive income during the year. Firstly, it is observable that there are significant movements in the equity reserves of the company. Secondly, it is observable that the fair value of income taxes and hedges of cash flow have also witnessed potential movements during the year (Kieso et. al, 2010). Thirdly, it is also notable that the company has disclosed its attempt of foreign currency translation and income taxes on a whole.

The company has appropriately highlighted the fact that many revenues and expenses have been failed to be realized by it during the year and the same has been portrayed in the comprehensive income statement. This highlights the fact that after realization of these aspects by the company, losses or gains arising as a result of these will be progressed towards recognition and will be displayed under the head recognized losses and gains. Thereafter, it is observable that the same forms part or is adequately disclosed by the company in its statement of income. Moreover, the company has also reflected that there are unrealized sales during the year and that has accommodated in its comprehensive income statement. Nevertheless, if such income had formed part of the income statement of Woolworths, it will highlight the fact that such income has not been realized yet (Woolworths limited, 2017). Moreover, as per the principles or requirements provided by GAAP and IFRS standards, the company’s net salaries must be properly depicted by it in its financial statements so that it can be portrayed that there are higher feasibilities of income that can be accrued in the upcoming time. Overall, these segments must find place outsides the company’s financial statements (income statement) and the reason behind this can be attributed to the fact that such income can be referred as that income which the company has not even realized in the present scenario.

The aspects or elements that have been disclosed by the company in the previous discussion, if these were disclosed in the financials, it would cause the attributable profits of the shareholders to decline. The most important reason behind this issue can be because the aggregate impact of these transactions can play a major role in the creation of potential losses on the part of the company and therefore, the shareholders will encounter a major decline in their attributable profits (Deegan, 2011). Moreover, this sheds light on the fact that the same will become an ineffective treatment on the company’s affairs and this is because there are major gains or losses that have been arising owing to the extraordinary transactions that have not been so particular as their occurrence. Furthermore, this also sheds light on the fact that it is efficient and appropriate to disclose these amounts outside the scope of the financial statements of the company.’

The elements that have formed part of the company’s comprehensive statement of income have not gone through the realization process. In other words, such items have not been attained in the current year and are yet to be realized. This highlights the fact that the company has been incapable of determining that these transactions possess the most feasibility of occurrence during the year. Besides, these transactions also play a vital role in the assessment of future feasibility of the company in relation to its statement of income. Nevertheless, it is already known that a company’s statement of income can allow users in determining whether it has been capable of maintaining its financial position during the year.

It has been observed in the case of Seafarms group Limited that there are no comprehensive incomes during the previous year that can be considered in order to analyze the differences are the common aspect between the two companies. Also, there were many items that were detected under the comprehensive income statements of Woolworths group Limited:

The increase in the exchange of foreign currency differences have also leaded to an increase in the cost of international operations. They have not planned transactions because of which the firm can face loss and also they are recorded outside the income statement because of their short-term nature.
A rise indicating instrument has been noticed because of the revaluation of equity securities invested by the organization. Their disposal will lead idea to gain or loss to the form that will be further transferred to the equity.
The cash flow hedge is depicted using the effective gain or loss of the derivative financial instrument.
 Recognition of actuarial gains and losses can be made on the net defined benefit liability for the protocol financial year in which they occur with the help of the comprehensive income statement. They are not generally reclassified into the income statement (Davies & Crawford, 2012).

  Cash flow hedge is shown about the effective gain or loss on the derivative financial instrument.
  The company recognises the actuarial gains or losses on the net defined benefit liability in the year when they occur and are shown in the comprehensive income statement. These do not get reclassified to Income Statement.

Accounting for Corporate income tax

The overall influence in relation to translation of foreign currency affairs is that there   has been a loss of $2.7 million for the year. Further, net comprehensive income in the last year was $1.4 million that is a negative indicator. Moreover, such comprehensive income as depicted in the below mentioned analysis of $113.10 million also accommodates net profit of $114.60 million (Woolworths limited, 2017). Since, the company is not specific or is unsure about the realization of comprehensive income, such has not formed part of the income statement.

Seafarms Group Limited- The company has clearly reflected and paved a path for disclosing that its net income tax costs that have occurred during the year has been $3576 (Seafarms Group Limited, 2017). 

The net costs related to tax have been disclosed by the company in its financials and is being reflected at $718 during the year (Woolworths limited, 2017). Besides, this was $651 million in the previous year. Moreover, the company’s tax expenses in association with its activities that have been discontinued have been disclosed at an amount of $74 million.

Seafarms Group Limited- 
From the financials, the company has disclosed its PBT to be in negative figure that is in losses and the income tax costs have been reflected at $3576. In addition, the effective rate of tax that has been portrayed by the company has arrived at thirty percent respectively. This clearly depicts that such segment is equivalent betwixt both the companies. 

Computation of effective rate of tax

This can be computed by dividing the company’s income tax costs with its profit before tax and therefore, since the income tax costs have stood at $714 million in the present year and profit before tax stood at $2394 million, the effective rate of tax shall come at 30% after dividing the same. Further, it is notable from the previously mentioned evaluation that there is a significant deterioration in the company’s deferred tax assets because of mass changes in time in relation to its liabilities and assets (Peirson et. al, 2015). However, no change is observable in the scenario of Seafarms Ltd as the same has been reported as nil in both the years.
Seafarms Group Limited-
Seafarms group Limited depicted a blank balance for the deferred assets in the balance sheet for the year 2018. The basic function of the deferred tax is to calculate and record the temporary differences that are present between the assets and liabilities of a company so that the purpose of transaction recording and taxation can be fulfilled for financial reporting systems. The differences have been settled in the same financial year itself (Seafarms Group Limited, 2017). 

Computation of cash tax of Woolworths

Provision of net tax = ($718m)
Decrease in deferred tax assets- $90m
(-) provisions of DTA and accruals- ($44m)
Decrease in deferred tax liabilities = $11m
Therefore, cash tax= $661 m

It can be noted that the cash tax rate of an organization can be calculated by dividing its cash tax by its PBT that has incurred during the year. In relation to Seafarms, the company’s cash tax amount has arrived at 30% but the effective tax rate of Woolworths has arrived at 27.61% (Woolworths limited, 2017). This highlights the fact that Seafarms’ effective tax rate is better than that of Woolworths Ltd (Merchant, 2012).

Seafarms Group Limited:
Provision of tax  – ($3576)
Decrease or increase in company’s deferred tax assets-        Nil
Less: DTA accruals and provisions during the year         –   Nil
Net decrease or increase in company’s deferred tax liabilities-   Nil
Cash Tax value is equal to- $3576 

The amount of cash tax of a company can be ascertained by evaluating their amount of book tax as depicted in the income tax return and any other alterations that can be observed in the deferred assets and deferred liabilities must be also evaluated for the same. Furthermore, users of the company can utilize such amount to attain self-interest objectives. Besides, such deferred tax liabilities and assets are also depicted by the company in the annual report so that the actual payable tax can be determined. In addition, the company has also disclosed its liability of income tax although it can be undertaken in the coming reporting period (Gowthrope, 2011).

both book tax and cash tax are distinct in nature owing to the presence of deferred tax liabilities and assets together with all the provisions that are designed for the liabilities of income tax (Madura & Fox, 2011).

After the clear analysis of the book report, it can be clearly stated that the organization Woolworths Group Limited was having a much better and positional financial performance in comparison to the performance of Sea farms Group Limited. It has also been noticed that the company Sea farms Group Limited was facing use losses from past few years and this may also lead to the collapse of the organization if proper management skills and not taken into consideration for making the financial growth. It has also been observed that the company was highly dependent on the external borrowings and finance which depicts low equity proportion of the organization. Also, when Woolworths Group Limited was analyzed, it was observed that a lot of equity fund was present in the organization which has not only helped to lower the debts but also have helped to conduct business operations smoothly. 
Davies, T., & Crawford, I. (2012).  Financial accounting. Harlow, England: Pearson.
Deegan, C. M. (2011).  In Financial accounting theory. North Ryde, N.S.W: McGraw-Hill
Gowthrope, C. (2011). Business accounting and finance for non specialists (3rd ed.). South Western
Kieso, D., Weygandt, J., Warfield, T; Young, N. and  Wiecek, I . (2010). Intermediate accounting. Toronto: John Wiley & Sons Canada.
Madura, R., & Fox, J. (2011). International financial management (2nd ed.). South Western
Merchant, K. A. (2012). Making Management Accounting Research More Useful. Pacific Accounting  Review, 24(3), 1-34. doi: https://doi.org/10.1108/01140581211283904
Needles, B.E., & Powers, M. (2013). Principles of Financial Accounting. Financial Accounting Series: Cengage Learning.
Parrino, R., Kidwell, D., & Bates, T. (2012). Fundamentals of corporate finance. Hoboken, NJ: Wiley
Peirson, G, Brown, R., Easton, S,   Howard, P. and Pinder, S. (2015). Business Finance, 12th ed. North Ryde: McGraw-Hill Australia.
Seafarms Group Limited. (2017) Seafarms Group Limited Annual Report and accounts 2017. [online] Retrieved  from:  https://seafarms.com.au/wp-content/uploads/2015/02/FY17-Financial-Statements.pdf 
Woolworths limited. (2017) Woolworths limited Annual Report and accounts 2017. [online] Retrieved  from: https://www.woolworthslimited.com.au/icms_docs/182381_Annual_Report_2015.pdf  

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