Corporate Accounting - Bell Financial Group Limited
Company has 267,286,480 fully paid ordinary shares which makes its authorised capital to $167.89 million. The shareholders are entitled to receive dividends as declared from time to time and they are also entitled to one vote per share at general meetings of the firm. All shareholders carry same rights as to the share in company’s assets on winding up.
Foreign Currency Reserve
This reserve record the value of any movement in the translation of foreign currency balances. This reserve stood at $ 529,000 on 31st December 2016 as compared to $ 610,000 million on 31st December 2015.
The Share Based Payment Reserve arises when the company grant options, deferred share rights and performance rights to its selected employees. The options and rights are given under the company’s equity-based remuneration plan.
This reserve comprises the effective portion of the cumulative net change in the fair value of the interest rate swap related to hedged transactions. This reserve stood at $48,000 on 31st December 2016 as compared to %17,000 on 31st December 2015.
This reserve represents the cost of the equity shares held by the Employee Share Trust which the group as a whole is required to show in its Consolidated Financial Statements. The amount in this reserve at the end of the current period is $2.1 million in comparison to $ 2.3 million at the end of previous year.
Changes and Reason of Change for each item of equity:
Following is the ‘Statement of changes in equity’ of the company depicting the changes in each item of equity:
Negative balance of Treasury Share reserve is reduced by $ 167,000 as the company has awarded employees share for the same amount. Share Based Payment Reserve has been increased by $ 6.77 million in total as it has increased by 8.44 million because of new amount in share based payment and decreased by 1.67 million as shares have been issued to employees for that amount. Negative value of cash flow hedge has further increased $ 31,000 as change in cash flow hedges of the company. Non controlling interest has been increased by 5.27 million which represents the share of minority in the profit earned by the subsidiary. Company’s retained earnings have increased to $ 19.96 million from $ 16.08 million. This increase of around $ 3.88 million is mainly because of the profits retained by the company this year from the profits made ($16.91 million) after distributing dividend of $ 12.50 million.
Overall Company’s equity balance has increased from $190.23 million to $195.37 million.
Company Tax Rate X Accounting Income = $ 25.18 million X 30% = $ 7.55 million ≠ $ 8.27 million.
This can’t be same since Income Tax Expense of the firm includes Current tax expense, Deferred tax expense, Tax expense or income as a result of under or excess provision in prior years. Moreover there are some incomes which are not taxable and some expenses which are not deductible for calculation of profit on which tax is calculated. Also there can be some income which is taxable at a different rate than the company tax rate.
Reconciliation of the Income Tax Expense of the company and the product of company tax rate and firm’s accounting income is as under:
Deferred tax asset signifies that the firm has paid taxes in advance in its balance sheet for the incomes it will record in future or for the expenses it has recorded now but will be deductible later.
Whereas deferred tax liability signifies that the firm has underpaid its taxes in its balance sheet for the incomes it has recorded now but will be taxable in future or for the expenses that are deductible now but firm will record in future.
In Bell Financial Group’s Balance Sheet deferred tax asset exists as shown below. Management of the company has concluded that there is sufficient evidence that there will be profits available in the future against which the tax losses will be utilised.
(v)Company has income tax payable of $ .72 million which is not equal to income tax expense of the company which is $ 8.27 million. ‘Income tax expense’ signifies tax expense of the company for a period, which has been calculated as per standard accounting rules whereas ‘Income tax payable’ signifies the amount that the company owes to pay as tax as per tax rules. Moreover ‘income tax expense’ is for a financial period, whereas ‘income tax payable’ is as on date which may include tax of previous financial period or it might be reduced if taxes are already paid before the balance sheet date. Income tax payable is generally calculated by adding Income tax expense for the current year to income tax payable of previous years and subtracting income tax paid in the current year. There can be the cases where the company has Income tax expense in the financial statement but income tax payable is zero and vice versa.
As a result of examining the accounts of the firm I understood that for accounting of Income Tax, company has to follow accounting standards as well as tax rules, tax has to be computed and paid as per the tax rules but it has to be recorded as per accounting standards on accrual basis. As per the accrual basis tax expenses has to be recorded in the year for which the income has been recorded in the financial statements. While as per the tax rules sometimes expense incurred in one year is deductible in next year and the Income tax that is to be paid to the government will be calculated as per those rules only.