Owners Equity

In this study, the annual report of two companies trading in Australian Securities Exchange has been taken to carry out the study. The two companies which has been taken are Kathmandu Holdings Limited and the other one is Myer Holdings Limited. The code in which the company is traded in the Australian Stock Exchange is KMD and MYR for Kathmandu Holdings Limited and Myer Holdings Limited respectively. This research paper analyses and interprets the cash flow statement, owner’s equity and accounting for taxation of the two companies. Analysis of owner’s equity helps to understand how the book value of the equity of the owner has changed over a specific period of time (Coleman, Cotei and Farhat, 2016). Cash flow statement of an organization helps to understand the cash inflow and outflow of the organization through various activities. Finally, the statement related to accounting for taxation helps to find out various tax related information of companies.

Retained Earnings –The accumulated profits of any organization is known as the retained earnings. Myer Holdings Limited has an amount of $16,426,000 as contributed capital at the end of 2016 and the end of 2017 it has a contributed capital of $49,276,000. The change in the contributed capital is due to the profit, which has been generated by Myer Holdings Limited in 2017.

Contributed Equity –When the shareholder pays a particular amount to get hold of the share of that organization it is known as contributed equity. Contributed equity includes additional paid up capital as well as paid up share capital. At the end of 2016 Myer Holdings Limited has an amount of $739,329,000 as contributed capital whereas at the end of 2017 the contributed capital declined to the amount of $73,329,000. The reason behind the decline of the contributed capital is due to the issue of share capital and acquisition treasury amounting to $187000 and $196,000 respectively.

Reserves – Any organization keep or retain a portion of the accumulated profit for further expenses that a company may incur in the near future. At the end of 2016 the reserves of Myer Holdings Limited were -$11,056,000 whereas at the end of 2017 the amount Myer Holdings Limited has reserved is -$8,67,000. It can be concluded that the change in the reserve from 2016 to 2017 due to various reasons including the share scheme provision of employees and other comprehensive income.

Contributed equity –From the annual report of Kathmandu Holdings Limited it has been found that at the end of 2016 the contributed capital, which has been incurred by the company, amounts to $200,191,000 whereas at the end of 2017 the contributed capital changed to $200,209,000. It can be concluded that the increase in the contributed capital from 2016 to 2017 is due to the share capital issue (Kathmandu Holdings Limited, 2017).

Cash Flows Statement

Reserves – At the end of 2016 the reserves of Kathmandu Holdings Limited amounts to -$24,541,000 whereas at the end of 2017 it amounted to -$23,002,000. The change in this reserve is due to share based payment reserves (Kathmandu Holdings Limited, 2017).

Retained earnings- At the end of 2016 the retained earnings of Kathmandu Holding Capital were $149,893,000 and at the end of 2017, the retained earnings changed to $136,033,000. The change in retained earnings has occurred due to change in the profit of the organization and due to the dividend payments.

An ideal format of the debt and equity of a company should be in such a way where the debt of the company should be lower as compare to the equity of the company. More debt involves more payment of loan, which decrease the profit of any organization. In the table below, the debt-equity of both the company has been shown and the analysis is being done accordingly.

Table 1: Debt and Equity

From the above table it can be concluded that the debt-equity ratio of Myer Holding Limited is more as compared to the debt – equity ratio of Kathmandu Holding Limited. Thus, it can be said that Myer Holding Limited is earning more profit than Kathmandu Holding Limited.

Table 2: Items of Myer Holdings Limited

Table 3: Items of Kathmandu Holding Limited cash flow statement

This kind of income statement shows the earnings and expenses which is not realized even at the end of the financial year. This generally happens if the transaction has not occurred (Black, 2016).

In the other comprehensive income statement of this company the two statements has been shown. They are the difference in the exchange on foreign transaction and the second one is cash flow hedges. They are not being shown in the income statement of the company. The meaning of cash flow hedge is the value of future cash inflow and outflow, which can be, incurred ore received by the organization in the future period of time. In a cash flow statement, the increase and decrease of the cash inflow and cash outflow is identified. In case of cash flow hedge organization cannot shown it in to the income statement as profit or loss because the amount is not realized at the end of the financial year.

On the other hand, the difference in exchange for the foreign transaction reveals or shows the gain or loss incurred by the organization due to the change in the value of currency of various nations in respect to the value of Australian currency. Organization record this as future foreign exchange receivable increased or future foreign exchange payable decreased. However, it cannot be recorded in the profit and loss statement of the organization if the amount is not realized at the end of the financial year.

Other comprehensive Income Statement

The cash flow hedge reserves of the organization movement are the exposure of the value change of the future cash inflow and outflow of the organization. In the current year the organization recognized the income amounting to $209000. It can be concluded that this amount cannot be mentioned in the profit and loss statement of the organization if the amount is not realized at the end of the financial year.

Table 4: Comparative Analysis on comprehensive income statement

From the comparative analysis of both the company it can be identified that both the company has similar items when it comes comprehensive income statement but it can also be seen that the comprehensive income of Kathmandu Holding Limited is less than as compared to the comprehensive income of Myer Holding Limited.

If these items of comprehensive income are shown in the profit and loss statement of both the organization, then the profit which is attributable to the shareholder of the organization along with that retained earnings will also increase.

The other comprehensive income statement of the organization helps to increase the available information to make a change regarding the appropriateness of the investment (Gazzola and Amelio, 2014). It also helps to make decisions by the management department of the organization. So, it is very important to consider the comprehensive income statement of an organization when the management department of the organization formulates the performance evaluation of the organization.

Tax expenses are calculated by multiplying the appropriate tax rate of an individual or business by the income received or generated before taxes, after factoring in such variables as non-deductible items, tax assets, and tax liabilities. Recent year 2017, the tax expenses of the Myer Holdings are $18,274,000 until 30 June 2017 ((Myer holding limited, 2017). Next, the Kathmandu Holdings limited for the same year 2017 until 30 June 2017 is $16,395,000 (Kathmandu Holdings Limited, 2017).

Below here tabulated rates of the effective tax of Myer Holdings Limited and Kathmandu Holdings

Table 5: Calculation of Effective tax rate and PBT

Hence can be concluded that Kathmandu Holding limited have lower effective tax rate than Myer Holdings limited, since its effective tax rate is much higher.

Tax assets and tax liabilities are two different entities, which occur at certain point of time when required. An asset on a company’s balance sheet that may be used to reduce any subsequent period’s income tax expense. Deferred tax assets can arise due to net loss carryover. Deferred tax liabilities generally arise where tax relief is provided in advance of an accounting expense/unpaid liabilities, or income. Recently both the companies showed deferred tax liabilities. Myer Holding limited of $9,817,000 and Kathmandu Holdings limited of $84,574,000. Kathmandu Holdings limited acquired timing differences due to its properties and its executive brand (Kathmandu Holdings Limited, 2017). Myer Holdings limited acquired timing differences due to its beneficial factors and highly reserve amenities (Myer holding limited, 2017).

Accounting for Croporate Income Tax

From the above table, it can be inferred that Myer holding limited is having higher cash tax rate than the other.

Cash tax rate varies from the effective tax rate because it is considered the liability portion whereas effective tax shows the tax expenses of the organization (Gordon, et al., 2017). Effective tax on the other hand, affects the sum of income tax expenses made by the firm as per the norms of the tax authorities for that particular period and the amount of deferred taxes for that year (J. Lewellen and K. Lewellen, 2016).

Conclusion

From this research paper the items which generates the cash inflow and the cash outflow of the organization has been analyzed. The research paper has also helped to understand the topic of owner’s equity and its importance while carrying out the business operations. In this study the analysis on the comprehensive income statement of the organization is also done. The research paper has discussed about various important topic like cash flow hedging andits importance in a company. An analysis is being done on the deferred tax liabilities, effective tax rate of both the selected companies.

Reference List

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