Value Of Deferred Tax Attributed To Revaluations - Free Samples

Question: Discuss about the Value Of Deferred Tax Attributed To Revaluations. Answer: Various items listed under equity can be ascertained from the annual report of Folkestone education trust unit. Items that are listed under equity include contributed equity, undistributed profits and available for sale financial assets reserve. Contributed equity are the total amount of shares that company buys directly from public either in the form of initial public offering and issuance of stock (Wahlen et al. 2014). The total amount of equity of Folkestone education trust unit is recorded at $ 629670 million in year 2017 and $ 531800 in year 2016 respectively. It is indicative of the fact that total equity value has increased by $ 97870 million (folkestone.com.au 2018). Undistributed profits are value of retained earnings or profits that have accumulated over a period and have been re invested in business. Such profits are reinvested in business and they are not distributed to shareholders in the form of dividends. Available for sale financial assets reserve is a financial security that is not classified or held for trading purpose (Mullinova and Simonyants 2016). Total amount of contributed equity is recorded at 324088 million in year $ 2016 compared to $ 330392 in year 2017. Undistributed profits have increased from $ 201975 in year 2016 as against $ 288835 in year 2017. Value of available for sale financial assets reserve has increased significant from $ 5737 million in year 2016 to $ 10443 in year 2017 respectively (folkestone.com.au 2018). Folkestone education trust unit has incurred a tax expense of $ 530000 in year 2017 that is incorporated in other expenses in consolidated statement of comprehensive income. Amount of tax expense in year 2016 is recorded at $ 849000. It can be seen that total amount of tax expenses have reduced in year 2017 (folkestone.com.au 2018). Accounting income for year 2017 and 2016 is recorded at $ 122310 and $ 106771 and the effective tax rate that is applicable to organization is 30%. From the reported figure, it is indicated that accounting income of company has increased in current year. Value of accounting income time the tax rate is (30% * $ 122310= 36693) for year 2017 and (30% *$ 106771= $ 32031.3) for year 2016. Analysis of figures indicates that tax expense of Folkestone education trust unit is higher than company tax rate times the accounting income. It is because an organization has to incur various types of income tax expenses and the factor that lead to differences between these two figures is that income tax might already be incurred that is deducted in coming years and in some years, income is charged. From the analysis of annual report of education trust unit, it can be seen that company has not reported any amount of deferred tax assets on their balance sheet. Organization has already paid their tax, they have been recognized in consolidated statement of comprehensive income, and this is because there is no creations of tax loss carry forward (Hanlon et al. 2016). Furthermore, there is no reporting of distribution payable and this is indicated by the amount of tax allowances that has been made for plant, building and equipment depreciation. This amount has been kept for distributing to unit holders of trust unit in the form of tax that is deferred component of distribution (Johnston and Kutcher 2015). Amount of deferred tax liabilities for year 2017 is recorded at $ 9049000 and for year 2016, amount stood at $ 8425000 (folkestone.com.au 2018). However, there has not been any deferred tax assets that is recorded in the financial statements. Folkestone education trust unit has not recorded any current tax assets for both the financial year that is 2016 and 2017. However, organization has recorded distribution tax payable that incorporates taxable amount and the amount is recorded at $ 9049000 in year 2017 and $ 8425000 in year 2016. When looking at figures of income tax expense for both the years, that is $ 530000 in year 2017 and at $ 849000 in year 2016 respectively (folkestone.com.au 2018). Therefore, from the analysis of figures, it can be said that there is considerable difference between distribution payable and income tax expense. Distribution payable incorporating tax payable is more than total amount of income tax expenses for both the financial year. Calculations of income tax payable are done based on accounting profits reported for any particular year (Tan and Robinson 2014). There can be difference in accounting profits and taxable profits due to several reasons such as timing differences, taxation law and r ules that is imposed by government. Income tax expense for year 2017 is recorded at $ 530000 and for year 2016, amount stood at $ 849000. It can be seen that in the current year income tax expense has reduced. Distribution payable for year 2017 is recorded at $ 9049000 and for year 2016, value is recorded at $ 8425000 (folkestone.com.au 2018). Therefore, the amount of tax paid or payable by company has not been provided in the balance sheet of company. It is not possible to make comparison between amount of income tax expense recorded and income tax payable due to insufficient information available concerning tax payments. The treatment of tax in the financial statement of Folkestone education trust unit was confusing and somewhat difficult to understand. This is attributable to the fact that information regarding taxation was not available in detail. New insights have been gained in terms of recording of amount of deferred tax liabilities in the form of tax allowances for depreciation of equipment, property and plant. Analysis of financial statements of organization is illustrative of the fact that little information concerning payment of tax would not assist investors or users in gaining detail information about it. Organization makes use of flow through basis for the purpose of taxation (Tan and Robinson 2014). It was ascertained that present value is determined by discount rate that helps in assessing time value of money of current market and risks that are particular to any liability. Therefore, new insights that have been gained are that organization makes use of tax rate in their process of capi tal budgeting decisions. References list: Badenhorst, W.M. and Ferreira, P.H., 2016. The Financial Crisis and the Value relevance of Recognised Deferred Tax Assets. Australian Accounting Review, 26(3), pp.291-300. Folkestone.com.au. (2018).Folkestone Financial Reports Folkestone. [online] Available at: https://folkestone.com.au/investors/financial-reports/ [Accessed 10 Jan. 2018]. Bloxham, E., 2015. Can corporate accounting ever be reformed?. Fortune magazine. Cao, M., Chychyla, R. and Stewart, T., 2015. Big Data analytics in financial statement audits. Accounting Horizons, 29(2), pp.423-429. Hanlon, D., Navissi, F. and Soepriyanto, G., 2014. The value relevance of deferred tax attributed to asset revaluations. Journal of Contemporary Accounting Economics, 10(2), pp.87-99. Johnston, D. and Kutcher, L., 2015. Do Stock-Based Compensation Deferred Tax Assets Provide Incremental Information about Future Tax Payments?. The Journal of the American Taxation Association, 38(1), pp.79-102. Mullinova, S. and Simonyants, N., 2016. Reflection of a deferred tax liability in the credit union reporting according to IFRS (IAS) 12 Income taxes. Modern European Researches, (1), pp.83-88. Small, R., Yasseen, Y. and Jansen, J., 2016. Accounting for deferred taxation: accounting technical. Professional Accountant, 2016(27), pp.14-16. Tan, C. and Robinson, T.R., 2014. Asian Financial Statement Analysis: Detecting Financial Irregularities (Vol. 8). John Wiley Sons. Wahlen, J., Baginski, S. and Bradshaw, M., 2014. Financial reporting, financial statement analysis and valuation. Nelson Education. Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning. Widiatmoko, J. and Mayangsari, I., 2016. The Impact of Deferred Tax Assets, Discretionary Accrual, Leverage, Company Size and Tax Planning Onearnings Management Practices. Jurnal Dinamika Manajemen, 7(1), pp.22-31.