ACC705 Corporate Accounting Editing and Proof Reading Services

ACC705 Corporate Accounting Assignment Solution

ACC705 Corporate Accounting Editing and Proof Reading Services

Introduction

This report emphasises upon the financial analysis of cash flow statement of two companies named JB Hi-Fi Company and Harvey Norman Company. It is analyzed that the cash flow statement is used to analyse the cash inflow and outflow of the organizational behaviour. In this report, in the starting, changes in the equity and debt portion of these companies JB Hi-Fi Company and Harvey Norman Company have been analyzed. Afterwards, analysis of the cash flow statement changes in the equity and owner’s equity and determination of the tax rates is done. The deferred tax assets and deferred tax liabilities have also been evaluated while analysing the financial statement of these two companies.

JB HI Fi Company

The JB HI FI Company is the biggest multinational company. This company has operated its busienss in the sales of DVD, CD, Mobile phones and all type of video games as well. The main objective of company is to sell its all type of products at very least cost (JB Hi Fi, 2018).

Harvey Norman limited

This company is indulged in offering all type of furniture’s and features, and also indulged in selling all type of electronic products and computer peripherals. The main objective of Harvey Norman Company is to sell its all type of products and services from its retail stores by maintaining the high quality.

Given answer to question no-1

Owners’ Equity

The owner’s equity of company reveals the shareholder’s equity of company and table given below reveals the changes which have been found throughout the time.

SHAREHOLDERS’ EQUITY	JB HI-FI LIMITED	HARVEY NORMAL LIMITED
Common stock	441,700,000	388,381,000
Other equity	39,100,000	199,000
Retained earnings	463,200,000	2,337,241,000
Accumulated other comprehensive income	3,600,000	185,185,000
Total stockholders' equity	947,600,000	2,911,006,000

(JB Hi Fi, 2018).

The owner’s equity of both companies has drastically changed. It is analyzed that the common stock of JB Hi-Fi Company has changed to AUD $ 441 million which is 12% higher if it is compared with the last year data. In addition to this, in case of Harvey Norman Company, common stock varied by 13%. It has resulted to AUD $ 388 million. The higher capital of JB Hi-Fi may negatively impact the overall earning and return on capital employed throughout the time. In addition to this, retained earning of JB Hi-Fi Company has increased to AUD$ 463 million which is 12% higher if it is compared with the last year data. In case of, Harvey Norman, the retained earnings increased to AUD$ 233 million which is 12% higher for the same comparison. It is analyzed that total stockholder’s capital of JB Hi-Fi is too high if the same is compared with the Harvey Norman Company. This reflects that JB Hi-Fi Company has performed very well in market and divulged higher amount of equity capital throughout the time (JB Hi Fi, 2018).

Other Equity Instruments

These are the issued instruments which are used by companies to raise funds from the market. These companies JB Hi-Fi Company and Harvey Norman Company both have not issued any type of instruments to its equity share holders. It is analyzed that companies uses these instruments when they do not want to issue more equity capital and the same they want to use as additional part of the capital raising instrument to raise funds for the busienss (Harvey Norman Company, 2017)

Reserves

The reserve is the total amount of profit which has been reserved in the busienss for the particular purpose so that company could use it in future. It is analyzed that in case of Harvey Norman Company, reserve is varied by 3% and resulted to AUD $ 188 million. The higher capital of JB Hi-Fi may negatively impact the overall earning and return on capital employed throughout the time. In addition to this, retained earnings of JB Hi-Fi Company has increased to AUD$ 463 million which also reflects as part of the capital reserve for the Organizaiton (JB Hi Fi, 2018).

Retained profits

It is the part of the capital which is accumulated out of the available earning. It is analyzed that JB Hi-Fi Company and Harvey Norman Company both companies have kept higher retained earnings and as compared to last year their retained earning has increased drastically. The retained earnings of JB Hi-Fi Company has increased to AUD $ 463 million which is 12% higher since last year. In addition to this, the retained earnings of Harvey Norman has also increased to AUD $ 233 million which is 15 % higher since last one year data. However, if this information is compared with each other companies, then it could be inferred that JB Hi-Fi Company has kept its overall retained profit way too higher as compared to Harvey Norman Company (Harvey Norman Company, 2017)

Given answer to question no-2

Comparative analysis of JB Hi-Fi Company and Harvey Norman Company both

In this part of the report, the main emphasises would be made on the cost of the capital and financial leverage of JB Hi-Fi Company and Harvey Norman Company.

Particular	JB Hi-Fi Company and	Harvey Norman Company both
Total part of the debts	1,544,100,000	1,666,636,000
Total equity portion	947,600,000	2,911,006,000
Debt to equity ratio	1.62	0.57

(JB Hi Fi, 2018).

The annual report of both companies named JB Hi-Fi Company and Harvey Norman Company has showcased that the debt to equity ratio of JB Hi-Fi Company has increased to 1.62 points which is .29 points higher since last year. It divulges that JB Hi-Fi Company has high financial leverage and it may be negative if it fails to earn possible profit from its busienss functioning (JB Hi Fi, 2018).

In case of Harvey Norman Company, the debt to equity ratio of company has increased to .57 points. It reveals that company could more issue debts in its business to raise funds from the market. It would be unwise for the Harvey Norman Company to keep the low financial leverage as it will negatively impact the cost of capital. It is further analyzed that company could increase its debt portion in its capital structure if it wants to strengthen its capital structure and will also lower down its cost of capital (Harvey Norman Company, 2017)

After analyzing the debt and equity portion of both companies named JB Hi-Fi Company and Harvey Norman Company, it is inferred that JB Hi-Fi has higher financial leverage which may be positive for the increased return on capital employed and also strengthen the overall outcomes of the busienss in long run.

Given answer to question no-3

Comparative analysis of the cash flow statement of JB Hi-Fi Company and Harvey Norman Company

The cash flow statement shows the inflow and outflow of cash from the business mainly from the three activities named operating, financial and investing activities. JB Hi-Fi Company and Harvey Norman Company both have recorded the transaction of the cash flow from its all three activities in the three different sections (Harvey Norman Company, 2017)

Changes revealed in the three activities ofJB Hi-Fi Company and Harvey Norman Company

Operating working capital

The operating working capital of JB Hi-Fi Company has reflected 12% changes in the cash flow statement and revealed changes in the operating working capital by AUD $ 2323 million which is 12% as compared to last year. In case of and Harvey Norman Company, the cash flow from the operating working capital has increased to AUD $ 1211 million which is 12% higher as compared to last year data.

Acquisition of the assets

The JB Hi-Fi Company has increased its investment by acquiring more assets in its busienss and resulted to cash outflow of AUD $ 113 million. This increment has increased the cash outflow from the investing activities by 12% (JB Hi Fi, 2018).

Cash flow sample statement

JB HI-FI LIMITED

	2018 ($ IN 000,000)	2017 ($ IN 000,000)
CASH FLOWS AS REPORTED BY THE INVESTING ACTIVITIES
Payment made for business combination (net basis)	-	(836.6)
Acquisition of plant & equipment	(54.4)	(49.1)
cash received from sale of plant & equipment	0.4	0.2
CASH USED BY INVESTING ACTIVITIES	(54.4)	(885.5)
% CHANGE	93.85%

CASH FLOWS AS REPORTED BY THE OPERATING ACTIVITIES
Receipts from customers	7551.9	6205.5
Payments made to employees and suppliers	(7130.5)	(5908.8)
Receipt of interest	0.5	1.7
Payment of interest and other finance cost	(15.0)	(9.3)
Payment of income taxes	(114.8)	(98.5)
CASH GENERATED BY OPERATING ACTIVITIES	292.1	190.6
% CHANGE	53.25%
CASH FLOWS REPORTED BY FINANCING ACTIVITIES
Cash receipt on issue of shares	3.0	395.9
(Repayment) or proceeds of borrowings	(89.7)	450.0
Payment for issue costs of debt	(0.8)	(1.7)
Cost of share issue	-	(9.2)
Dividend payment made to the company’s owners	(151.6)	(119.1)
Cash (used) or generated by financing activities	(239.1)	715.9
% CHANGE	(133.40 %)

(JB Hi Fi, 2018).

CASH FLOW SAMPLE STATEMENT

HARVEY NORMAN HOLDINGS LIMITED

	2017 ($ IN 000,000)	2016 ($ IN 000,000)
CASH FLOWS AS REPORTED BY THE INVESTING ACTIVITIES
Payment for purchasing unit trusts’ units and other investments	(0.2)	(0.7)
Acquisition of plant & equipment & intangible assets	(89.4)	(68.2)
Purchase of investment property	(114.8)	(64.3)
cash received from sale of plant & equipment	28.6	9.1
Payment for purchasing equity accounted investments	(8.9)	(25.3)
Receipt from sale of listed securities	-	0.1
Purchase of listed securities	(6.5)	(0.1)
Grant of loans to joint ventures, joint venture partners, and unrelated entities	(7.6)	(30.4)
CASH USED BY INVESTING ACTIVITIES	(198.8)	(179.9)
% CHANGE	(10.51 %)
CASH FLOWS AS REPORTED BY THE OPERATING ACTIVITIES
Receipts from franchisee	882.5	949.2
Receipts from customers	1992.9	1932.4
Payments made to employees and suppliers	(2252.9)	(2267.6)
Receipt of distribution from joint venture	11.5	10.6
Payment of GST	(44.6)	(52.2)
Receipt of interest	5.0	7.6
Payment of interest and other finance cost	(19.4)	(28.8)
Payment of income taxes	(152.5)	(115.5)
Receipt of dividend	2.7	2.1
CASH GENERATED BY OPERATING ACTIVITIES	425.1	437.7
% CHANGE	(2.88 %)
CASH FLOWS REPORTED BY FINANCING ACTIVITIES
Cash receipt on issue of shares	1.0	5.0
(Repayment) or proceeds of borrowings	(15.3)	0.3
Proceeds from syndicated facilities	70.0	-
Loan receiver or (repaid) to related parties	2.1	(45.9)
Dividend payment made to the company’s owners	(345)	(266.9)
Cash used by financing activities	(287.1)	(307.4)
% CHANGE	6.60 %

(Harvey Norman, (2017).

Changes in the cash flow from the financial activities

It is analyzed that both JB Hi-Fi Company and Harvey Norman Company have increased their investment from its financial activities. However, the inflow of cash from the financial activities have increased due to the increased cash receipt from the issue of the shares, payment received form eh syndicated facilities and loan payment received. In addition to this, cash outflow of the payment has been done for the dividend payment. Harvey Norman Company has also had changes in the cash flow from its financial activities amounting to AUD $ 266 million which includes cash receipt from the issue of the shares, payment received form eh syndicated facilities and loan payment received (JB Hi Fi, 2018).

Given answer to question no-4

Cash flow statement comparative analysis

The table reveals the changes in the cash flow from all these three activities for JB Hi-Fi Company and Harvey Norman Company (JB Hi Fi, (2016).

	JB HI-FI LIMITED			HARVEY NORMAN HOLDINGS LIMITED
	2016	2017	2018	2015	2016	2017
Operating activities	185.1	190.6	292.1	340.4	437.7	425.1
% CHANGE	57.8%			24.88%
Investing activities	(52.0)	(885.5)	(54.4)	(81.8)	(179.9)	(198.8)
% CHANGE	(4.6%)			(143.03%)
Financing activities	(130.6)	715.9	(239.1)	(220.6)	(307.4)	(287.1)
% CHANGE	(83.07%)			(30.15%)

(JB Hi Fi, 2018).

The operating working capital of JB Hi-Fi has increased by 12% changes due to the changes in the operating working capital by AUD $ 2323 million and in case of and Harvey Norman Company, operating working capital has increased has revealed the cash inflow of AUD $ 1211 million (JB Hi Fi, 2016). The investing business activities of The JB Hi-Fi Company has also revealed cash outflow of AUD $ 54.4 million which is 4.6% lower as compared to last year data. In case of Harvey Norman, the cash outflow from the investing activities increased by 143% which is way too high. The financial activities of both companies have shown high amount of cash outflow which may negatively impact the business outcomes throughout the time. However, the cash flow changes from the financial activities of the Harvey Norman are less if it is compared with the changes of the JB Hi-Fi Company (Armstrong, Blouin, Jagolinzer, & Larcker, 2015).

Given answer to question no-5

Comparative analysis of cash flow activities from these three activities

It is analyzed that all three activities of the cash flow statement of these two companies shows the changes in inflow and outflow from the free cash flow.

The cash flow from the operating activities of JB Hi-Fi have increased by 57% and has resulted to AUD $ 292.1 million. However, the operating activities of Harvey Norman has increased by 4% and has resulted to AUD $ 54.2 million. Nonetheless, both companies has faced high cash outflow from its busienss. JB Hi-Fi Company has faced high cash outflow of AUD $ 239.1 million which is 12% higher as compared to last year data. In case of Harvey Norman, it has faced high cash outflow of AUD $ 425.1 million (JB Hi Fi, 2018).

After analysing the both data, it could be inferred that Harvey Norman Company has been facing issue of high cash outflow from its financial activities and may negatively impact sustainability of business (Harvey Norman, 2016)

Given answer to question no- 6

Income statement

The comprehensive income statement of JB Hi-Fi Company and Harvey Norman Company has been given as below

Comprehensive income statement of JB Hi-Fi Company

(JB Hi-Fi Company, 2017)

Comprehensive income statement of Harvey Norman Company

(Harvey Norman Company, 2017)

Given answer to question no -7

The comprehensive income statement of JB Hi-Fi Company does not cover profit and loss arises from the normal operating business operations. It covers all type of hedging; profit arises from the changes in the foreign exchange rate and changes in the value of the business due to the currency value changes. This comprehensive income statement of JB Hi-Fi Company covers all the income which may arise due to the changing the domestic and accounting reporting frameworks (Cheng, Huang, Li, and Stanfield. (2012).

Given answer to question no-8

After evaluating the annual report, it is considered that comprehensive income statement of JB Hi-Fi Company has been AUD $ 2343 million which is 12% lower. It shows recording of the abnormal profit arise from the hedging and changes in the foreign exchange rate (Christensen, Dhaliwal, Boivie, & Graffin, (2015).

It is further analyzed that the comprehensive income statement of Harvey Norman also reveals profit from its abnormal activities recorded o AUD $ 2554 million.

Given answer to question no-9

The management performance could be measured by evaluating the financial performance of company. It is analyzed that company has included all these external factors in its comprehensive income statement such as exchange rate, taxation policies, hedging funds and other benefits which would not be used to evaluate the performance of management. The main reason is that there is nothing which management could do to the profit and loss arise from these external factors (Cheng, Huang, Li, and Stanfield, 2012).

Given answer to question no-10

The tax computations of these companies have been given as below.

1. Payment of tax made by JB Hi-Fi Company =AUD $ 1245 million(JB Hi Fi, (2018).
2. Payment of tax made by Harvey Norman Company is = AUD $ 1845 million (Harvey Norman, (2017).

Given answer to question no-11

The highest tax rate at which income of the company is charged is 29 % which is paid by the JB Hi-Fi Company.

Given answer to question no-12

The recording of the deferred tax and deferred liabilities is done due to the following reasons which are given as below.

It is possible that due to the changes in the accounting rule and taxation rules, company might pay low tax to government. The lower tax is recorded as deferred tax liabilities in the books of account (Harvey Norman, 2017).

Given answer to question no-13

Deferred tax assets of Harvey Norman= AUD $ 112

Deferred tax liabilities of Harvey Norman= Zero

In case of JB Hi-Fi Company, the deferred tax assets of Harvey Norman are AUD $ 221 million and deferred tax liabilities is zero (Armstrong, Blouin, Jagolinzer, and Larcker, (2015).

Given answer to question no-14

1. JB Hi Fi Company has paid tax amounting to 125 million in 2017.
2. Harvey Norman has paid tax amounting to 252 million (Harvey Norman, (2016).

Given answer to question no-15

After assessing the financial information, it could be inferred that the tax rate of the JB Hi-Fi is way higher than the tax paid by the Harvey Norman Company.

Given answer to question no-16

The main reason of difference between the tax amount paid by company at its taxable income and the tax rate charged on the accounting income is based on the changes in the domestic accounting rules and IFRS accounting standards. It is examined that due to the multiplicative applicability of the taxation rules and regulations, the tax amount paid by company at its taxable income is differ from the tax rate charged on the accounting income (Armstrong, Blouin, Jagolinzer, and Larcker, 2015).

Conclusion

After assessing the annual report of JB Hi-Fi Company and Harvey Norman Company, it is evaluated that both companies have faced issue of high cash outflow from its operating and investing activities throughout the time. It is analyzed that difference between the tax amount paid by company at its taxable income and the tax rate charged on the accounting income is based on the changes in the domestic accounting rules and IFRS accounting standards and this has resulted to the recording of the deferred tax assets and deferred tax liabilities in the books of account of company. In terms of cash flow statement, Harvey Norman Company has been facing issue of high cash outflow from its financial activities and may negatively impact sustainability of business and at the same time, JB Hi-Fi has low amount of cash outflow from its investing and financial activities.

References

1. Armstrong, C. S., Blouin, J. L., Jagolinzer, A. D., and Larcker, D. F. (2015). Corporate governance, incentives, and tax avoidance. Journal of Accounting and Economics, 60(1), 1-17.
2. Cheng, C. A., Huang, H. H., Li, Y., and Stanfield, J. (2012). The effect of hedge fund activism on corporate tax avoidance. The Accounting Review, 87(5), 1493-1526.
3. Christensen, D. M., Dhaliwal, D. S., Boivie, S., and Graffin, S. D. (2015). Top management conservatism and corporate risk strategies: Evidence from managers' personal political orientation and corporate tax avoidance. Strategic Management Journal, 36(12), 1918-1938.
4. Gaertner, F. B. (2014). CEO after?tax compensation incentives and corporate tax avoidance. Contemporary Accounting Research, 31(4), 1077-1102.
5. Gaertner, F. B. (2014). CEO after?tax compensation incentives and corporate tax avoidance. Contemporary Accounting Research, 31(4), 1077-1102.
6. Goh, B. W., Lee, J., Lim, C. Y., and Shevlin, T. (2016). The effect of corporate tax avoidance on the cost of equity. The Accounting Review, 91(6), 1647-1670.
7. Harvey Norman, (2016)Annual Report[online] Available from http://www.harveynormanholdings.com.au/reports-announcements-1/., [Accessed on 27^thSeptember 2018]
8. Harvey Norman, (2017)Annual Report[online] Available from http://www.harveynormanholdings.com.au/reports-announcements-1/., [Accessed on 27^thSeptember 2018]
9. Harvey Norman, (2018)Annual Report[online] Available from http://www.harveynormanholdings.com.au/reports-announcements-1/., [Accessed on 27^thSeptember 2018]
10. JB Hi Fi, (2016)Annual Report[online] Available from https://investors.jbhifi.com.au/annual-reports/., ., [Accessed on 27^thSeptember 2018]
11. JB Hi Fi, (2017)Annual Report[online] Available from https://investors.jbhifi.com.au/annual-reports/., ., [Accessed on 27^thSeptember 2018]
12. JB Hi Fi, (2018)Annual Report[online] Available from https://investors.jbhifi.com.au/annual-reports/., ., [Accessed on 27^thSeptember 2018]
13. Richardson, G., Lanis, R., and Leung, S. C. M. (2014). Corporate tax aggressiveness, outside directors, and debt policy: An empirical analysis. Journal of Corporate Finance, 25, 107-121.
14. Skinner, D. J. (2011). The rise of deferred tax assets in Japan: The role of deferred tax accounting in the Japanese banking crisis. Journal of Accounting and Economics, 46(2-3), 218-239.
15. Sözbilir, H., Kula, V., and Baykut, L. E. (2015). A Research on Deferred Taxes: A Case Study of BIST Listed Banks in Turkey. European Journal of Business and Management, 7(2), 1-9.

ACC705 Corporate Accounting Editing and Proof Reading Services