Overview of Liquefied Natural Gas Limited’s Equity Items
I.In the balance sheet of the companies, three major items can be seen; They are Assets, Liabilities and Equity (Brigham and Houston 2012). The presence of all these three aspects can be seen in the balance sheet of Liquefied Natural Gas Limited. Under the ‘Equity’ head of Liquefied Natural Gas Limited, three major items can be seen; they are Contributed Equity, Reserves and Accumulated Losses (lnglimited.com.au 2018). Contributed Equity are considered as the equity share capital of the company that the companies use to raise in order to fulfill the capital requirement. One can obtain the amount of issued capital by multiplying the number of shares with the par value of the shares (Higgins 2012). The annual report of Liquefied Natural Gas Limited shows a slight increase in the amount of contributed equity; that is $392,875,000 in 2017 and $392,220,000 in 2016 (lnglimited.com.au 2018). The main reason or the increase in contributed equity is the increase in the issue of shares in 2017 as compare to 2016; that is 512,979,962 from 503,977,606 (lnglimited.com.au 2018). In this aspect, it needs to be mentioned that the company issued 1,759,000 numbers of ordinary shares in the year 2017. The next item under equity of Liquefied Natural Gas Limited is Reserves and it is an important aspect for the companies. Most of the times, shareholders use to pay some excess amount of money except the basic share price and this extra amount of money refers to Reserves (Petty et al. 2015). From the latest annual report of Liquefied Natural Gas Limited, it can be observed that the company has increased the amount of reserve in 2017 from 2016; that is $43,690,000 in 2017 and $41,553,000 in 2016 (lnglimited.com.au 2018). The main reason behind the increase in reserve is the issue of share with premium. The next item is Accumulated Losses. Accumulated loss refers to the whole amount of loss the companies have to conceive from the time of foundation due to the payment of dividend (Finkler et al. 2016). As per the latest annual report of Liquefied Natural Gas Limited, there has been an increase in the amount of accumulated losses in 2017 as compared to 2016; that is $(382,012,000) in 2017 and $(350,702,000) in 2016. Apart from this, increase in non-controlling interest can be seen in 2017 as compared to 2016; that is $122,000 in 2017 and $120,000 in 2016 (lnglimited.com.au 2018).
II.Business organizations are required to occur different kind of expenses for continuing their business operations; like administrative expenses, direct expenses, selling expenses and many others. Like all these, Liquefied Natural Gas Limited needs to occur Tax Expenses for their business operations. Companies consider tax expenditure as a major expense that the companies own to federal government and state government (Khafizova and Fassakhov 2015). Companies use to obtain the tax expenses by multiplying the applied tax rate with the income before tax after considering the deductable items. However, it needs to be mentioned that the companies are not required to pay taxes in case there is loss before tax. In the financial statements of Liquefied Natural Gas Limited, the existence of tax expenses can be seen. In the year 2017 and 2016, the company has tax rate of 27.5% and 30% respectively (lnglimited.com.au 2018). The latest annual report of Liquefied Natural Gas Limited states that the company has tax expenses of $111,000 in the year 2017 and the company has tax benefit of $(28,000) in the year 2016. Thus, it can be observed that the company enjoyed tax benefits in 2016, but they had to pay tax expenditure for 2017 (lnglimited.com.au 2018). In this context, it needs to be mentioned that the company has done many adjustment with their tax expenditures in order to get the exact amount of tax expenses. These are the major taxation expenses of the company.
Tax Expenses in Liquefied Natural Gas Limited’s Financial Statements
III.From the latest annual report of Liquefied Natural Gas Limited, it can be observed that the company has loss before tax worth $(29,201,000) and $(115,140,000) in the year 2017 and 2016. The tax rates for 2017 and 2016 are 27.5% and 30% respectively. Companies are not required to pay income tax on net loss. Thus, at this tax rate, the company should have tax benefits worth $8,030,000 and $34,352,000 for 2017 and 2016 respectively. However, the company has reported $111,000 and $(28,000) in 2017 and 2016 (lnglimited.com.au 2018). Thus, it can be seen that there is clear difference in the tax expenses. The tax reconciliation statement of the company shows the existence of various factors that can be held responsible for this difference, as they all have increased the tax expenses of the company (Fodor 2015). It can be observed that the company has share-based payments due in the financial years of 2017 and 2016 that has not been adjusted at the time of the calculation of tax expenditure. For this reason, $356,000 and $2,720,000 have been adjusted in 2017 and 2016 respectively. In the business operations of Liquefied Natural Gas Limited, there is some expenditure that are not subject to tax deduction. It implies that all these expenditures should not be deducted from the profit of the company as they have been occurred due to the course of the business (B?canu 2016). For this purpose, $3000 and $10,000 have been adjusted with in 2017 and 2016 respectively (lnglimited.com.au 2018). After that, there are some substances that are responsible for the decrease in the tax expenses of Liquefied Natural Gas Limited. The first item under this is non-assessable income. It needs to be mentioned that the companies are not required to pay taxes on non-assessable income and it does not have any effects on the tax losses (Dauchy 2013). The annual report of Liquefied Natural Gas Limited states that the company does not have any amount required to be adjusted in the year 2017. However, in the year 2016, the company had to adjust $(150,000) due to non-assessable income (lnglimited.com.au 2018). The next item is unrecognized deferred taxes. This can be seen due to the difference in the tax rates. For this particular reason, the company has adjusted $7,782,000 and $31,744,000 in the year 2017 and 2016 (lnglimited.com.au 2018). Thus, these are the major factors responsible for creating differences between the calculated and reported tax expenditures of Liquefied Natural Gas Limited.
Comparison of Company Tax Rate and Tax Expense
IV.Deferred tax assets and deferred tax liabilities are regarded as the important part of the taxation of the companies. Sometimes companies pay extra amount of taxes and thus, the payment of extra amount is considered as deferred tax assets (Laux 2013). On the other hand, sometime companies pay less amount of taxes due to the difference in tax rates and the less amount of tax is considered as deferred tax liability (Harrington, Smith and Trippeer 2012). In case of Liquefied Natural Gas Limited, it can be observed that the company use to follow certain taxation related rules for the treatment of deferred tax assets and liabilities. In Liquefied Natural Gas Limited, the company recognizes their deferred tax assets based on all temporary differences when it is probable that taxable profit will be available for the company. On the other hand, the company uses to recognize their deferred tax liabilities when different can be seen the taxation rates due to some reasons (lnglimited.com.au 2018). From the annual report of Liquefied Natural Gas Limited, it can be observed that the company has not recorded any deferred tax assets and differed tax liabilities in the year 2017 and 2016 (lnglimited.com.au 2018). The main reason behind this the provision of the offset of deferred tax assets and liabilities. According to the annual report of the company, it can be seen that the company has a provision of offsetting the deferred tax assets and liabilities when there is a legal enforceable right to set off current tax assets against current tax liabilities of Liquefied Natural Gas Limited.
V.Under the taxation of the companies, two major components are Current tax Assets and Current tax Liabilities. Current tax assets refer to the aspects helping in the deduction of income tax payment of the companies (Friedman 2013). On the other hand, income tax payable or current tax liability refers to the amount of tax required to be paid within one-year time (Widerquist et al. 2013). The analysis of the annual report of Liquefied Natural Gas Limited states that the company has not recorded any current tax assets in the balance sheet. However, for the year 2016, Liquefied Natural Gas Limited has recorded $9000 as the income tax payable (lnglimited.com.au 2018). In the business organizations, differences can be seen between income tax payable and income tax expenses. Companies get the amount of income tax expenses by calculating the income tax expenditure with their own tax rate based on standard business accounting rule. For this reason, companies use to report this expenditure in their income statements. On the other hand, income tax payable is the amount of tax that the companies own to the government based on the rule of tax code. For this reason, companies use to report them in liability side of the balance sheet until the companies make the payment of these taxation expenses. This is the main reason that leads to the difference between the amounts of income tax payable and income tax expenses. There is not any exception of this fact in case of Liquefied Natural Gas Limited as this is the main reason for the difference.
Deferred Tax Assets and Liabilities in Liquefied Natural Gas Limited’s Balance Sheet
VI.Business organizations use to report their income tax expenses in two places; they are income statement and statement of cash flows. The same aspect can be seen in the annual reports of Liquefied Natural Gas Limited as the company has reported about their income tax expenses in income statement and cash flow statement (Arulampalam, Devereux and Maffini 2012). However, it can be seen that there is difference between the expenses. As per the income statement of Liquefied Natural Gas Limited, the reported income tax expenses are $(111,000) and $28,000 in 2017 and 2016 respectively (lnglimited.com.au 2018). At the same time, as per the statement of cash flows of Liquefied Natural Gas Limited, the receipts of taxation from the taxation authorities are $497,000 and $1,196,000 in 2017 and 2016 respectively (lnglimited.com.au 2018). Thus, it can be observed that there is clear difference in the tax reporting in income statement and cash flow statement. Income tax expenses refers to the amount of income tax that Liquefied Natural Gas Limited is required to be paid to the government for the current year. For this reason, it is calculated by multiplying the tax rate with the income before income tax. However, the situation is different in case of cash flows from operating activities. Cash flow from operating activities includes the increase and decrease in the current assets and liabilities. For this reason, payment of income tax in the cash flow from operating activities includes deferred tax liabilities and current tax liabilities or income tax payable (Arulampalam, Devereux and Maffini 2012). For this reason, the amount of income tax payment in cash from is more as compared to the income tax expenses in the income statement. This is the reason for difference.
VII.After the whole analysis, it can be observed that Liquefied Natural Gas Limited have done their business taxation treatment in an interesting manner by maintaining the required transparency. The company has shows all the taxation related calculation in the notes of financial statements so that one can obtain proper justification and clarification from them. For this reason, there is not any place for confusion. The most interesting factors related to the taxation treatment of Liquefied Natural Gas Limited is the offsetting of deferred tax assets and deferred tax liabilities due to the taxation provision of the company. The whole taxation treatment of Liquefied Natural Gas Limited can be an aspect of learning as one can gain proper insight about the process of carrying out the taxation operation of large corporations. One can know the reasons behind the difference in the tax amounts shown in income statement and cash flow statement from the above discussion. In addition, one can gain insight about the fact that it is the legal obligation of the companies to carry out their taxation transactions by complying with the taxation laws of the respective countries.
References
Arulampalam, W., Devereux, M.P. and Maffini, G., 2012. The direct incidence of corporate income tax on wages. European Economic Review, 56(6), pp.1038-1054.
B?canu, M.N., 2016. Comparative study regarding the taxation objectives and the accounting objectives–domains of influence in the economic circuit. Theoretical and Applied Economics, 23, p.43.
Brigham, E.F. and Houston, J.F., 2012. Fundamentals of financial management. Cengage Learning.
Dauchy, E.P., 2013. The efficiency cost of asset taxation in the US after accounting for intangible assets.
Finkler, S.A., Smith, D.L., Calabrese, T.D. and Purtell, R.M., 2016. Financial management for public, health, and not-for-profit organizations. CQ Press.
Fodor, A., 2015. The impact of taxation on company value.
Friedman, M., 2013. The case for a negative income tax: A view from the right. Basic Income, p.11.
Harrington, C., Smith, W. and Trippeer, D., 2012. Deferred tax assets and liabilities: tax benefits, obligations and corporate debt policy. Journal of Finance and Accountancy, 11, p.1.
Higgins, R.C., 2012. Analysis for financial management. McGraw-Hill/Irwin.
Khafizova, A.R. and Fassakhov, I.A., 2015. Development of the oil companies taxation system. Mediterranean Journal of Social Sciences, 6(1 S3), p.20.
Laux, R.C., 2013. The association between deferred tax assets and liabilities and future tax payments. The Accounting Review, 88(4), pp.1357-1383.
Lnglimited.com.au. (2018). ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2017. [online] Available at: https://www.lnglimited.com.au/irm/PDF/5171_0/2017AnnualReport [Accessed 24 Jan. 2018].
Petty, J.W., Titman, S., Keown, A.J., Martin, P., Martin, J.D. and Burrow, M., 2015. Financial management: Principles and applications. Pearson Higher Education AU.
Widerquist, K., Noguera, J.A., Vanderborght, Y. and De Wispelaere, J., 2013. Basic income: an anthology of contemporary research.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
