Assessment Of Cash Flow Statement For Wesfarmers

Cash Flow Statement

The main purpose of this presentation is about the assessment of cash flow statement. For this cash flow analysis, the Wesfarmers business is reported in context of discussion about the items that are recorded in the cash flow statement. In addition to this, the items which are reported into the other comprehensive statement are also assessed with the discussion about their determination of role in the corporate accounting effectiveness. In relation to this, it is also assessed that why the items of other comprehensive statement are recorded in the income and profit and loss account. In addition to this, the income tax treatment for the Wesfarmers is also evaluated in context of the tax expenses of company in the particular time duration. Moreover, the company tax rate is also discussed with the firm’s accounting income. On the other hand, it is also addressed that deferred tax assets or liabilities are recorded in the balance sheet of business for the year end results. The treatment of income tax expense and income tax payable are also assessed in comparative manner why these are not the same in the financial reporting of information in different account statement.                                                       

The cash flow statement is a financial statement that records the transaction which occurred in the financial year for the company in regulated time duration. In this statement the cash flow stated as from the source the cash comes and by what the cash goes out. The cash flow statement measures the different sources for the company and the activities for which the cash is used. The different items are included in this statement which are disused in context of Wesfarmers limited Australia as follows

(i) Understanding about the items of cash flow statement 

Cash flow from operating activities

Receipts from customers: This is the amount which needs to be due over the customers of company and the payment will get in that specified time duration (Downs, 2017). The payment is received from the customer in order to purchasing of goods from the company.

Payment to suppliers and employers

This amount is determined as the liabilities for the company which is due on the company and it is required to pay to the employees and its material suppliers to the Wesfarmers. This item has changed from the last three year’s higher payment.  

Net movement in finance advances and loans

This type of item that is reported in relation to the loan which is taken and advances payment that is received from its customers so that the liability of business can be assessed (Reid and Myddelton, 2017).

Cash Flow from Operating Activities

Interest received

This item is recorded in context of recording the amount in cash flow which is received by the company from its interest from operating activities. This item is also increased from the year 2016 to 2017.   

Borrowing cost

This item is reported in the cash flow statement which is concerned about the cost amount that is incurred in relation to the borrowing for the business operations (Stice, Stice and Stice, 2017).

Income tax paid

The income tax paid is that item which is reported in context of liability for the company which is paid in order to credit taken. This cash flow statement has also increased from the last year with the largest value deviation.  

Cash flows from investing activities  

Payment for the property, equipments and plants

This is also recorded in the cash flow statement for which the payment is made by the company in order to purchasing of plant and property (Bienias, Lehman and Gentene, 2013).

Proceeds from sales of property

This item is termed as the income for the company when the company sold out its plants and equipments.

Acquisition of subsidiaries

About this item, it is known that if the company take over a business in order to strengthen the capability of company itself than the company needs to pay for this (Stevanovi?, Belopavlovi? and Lazarevi?-Morav?evi?, 2017).

Net redemption of loans

The loan amount is redeemed by the loan provider to assessing the creditworthiness of business. So this is treated as the income for business.

Cash flow from financial activities

Proceeds from borrowings

The company gets this amount when it sold out the material or cash when it was taken by the company.

Repayment of borrowings

This is the item which is recorded by the company in order to making the payment to its borrowers in significant time duration (Easton, Vassallo and Weisbrod, 2017). The borrowing from the external parties has also increased in significant number.   

Equity dividend paid

This is the part of profit which is paid by the company to its equity shareholders and it is the responsibility of company to pay the relative part of profit to its partners. 

As per the analysis of cash flow statement of business, it is determined that the cash and cash equilant for the Wesfarmers has increased from the year 2015 to 2017 as it was in negative amount as US$152 million and in year 2016 it is recorded as US$ (100) million. On the other hand, it is recorded as YS$402 million increase in one year of time span (Wesfarmers, 2017). From the review of cash flow statement for Wesfarmers, it can be stated that the cash flow from operating activities is generate as US$3365 million in the financial year 2016 and it is recorded as US$ 4226 million in the year 2017. On the other hand, it can be determined that the operating activities have been surged in last two years. Along with this, it is also assessed that the cash flow from the investing activities is also generated in the strong amount as it is reported in the year 2016 as (US$2132M) but at the same time, it is also calculated in the year 2017 by US$(53m). Furthermore, it is also discussed that the cash flow from financing is also increased due to the changes in the operational activities of Wesfarmers. The cash generated from the financing activities as (US$1331m) in the year 2016 but on the other hand, it is surged from the amount to (US$3771m) (Hewitt, Hodge and Pratt, 2017). Overall, it can be stated that the operating performance of business is increasing and company is growing with the rapid force.      

Cash Flow from Investing Activities

The other comprehensive statement items are those items which are excluded from the income statement as per the regulations of Generally Accepted Accounting Principles. There are many items which are included in the other comprehensive income of Wesfarmers business operational transactions occurred.

(iii) Reporting and understanding about financial reporting items which are recorded in the other comprehensive statement 

The Wesfarmers business has generated the income about US$18 million and it was the negative performance in the year 2016 by US$ (78) million. The main other comprehensive income items are as follows  

Exchange differences on translation of foreign operations

In relation to this item it can be stated that the difference is found out from the exchange of foreign currency with the different currency for the two differ nation’s capital (Khansalar and Namazi, 2017).   

Unrealised losses on cash flow hedges

This item is recorded in the other comprehensive statement which is about to the unrealized loss or gains from the transactions of business operations.

Realised losses transferred to net profit

This type of item is also not included in the comprehensive income statement due to its application on accounting regulations. This amount is transferred to the net profit of business and it is deducted from the profit part.

Realised losses/(gains) transferred to non-financial assets

The non-financial losses or gains are also recorded under the other comprehensive statement as the financial items are recorded under the income statement but this non-financial is not shown (Al-Attar and Maali, 2017).   

Share of associates and joint venture reserves

In context to this, the share’ losses and gains are determined with related to the joint venture company.         

Tax effect It is also other comprehensive item that is shown towards the impact of taxation on the comprehensive income.

(iv) Reason for the items due to which these items have not been reported in income and profit and loss statement 

The other comprehensive items are not included in the profit and loss account and it is also determine that these items are also not included in the income statement. The main reason behind that the IFRS is not permitted to the treatment of these items in the income statement. The total comprehensive statement is the reporting for changes in the equity so the other items might influence the rules and regulations in effective manner (Jury, 2012). On the other hand, these are not included in the P/L account because of confusing in relation to the entering or reporting and might also affect the entire statement to develop.  

(v) Discussion about the Wesfarmers tax expenses 

From the review of financial statement of Wesfarmers for the year 2017, it is assessed the tax expenses for the company has occurred by the amount of US$127 which is just double for the previous year 2016 (Ramachandran and Ram, 2014).                      

(vi) Analysis about the company tax rate for accounting income 

Cash Flow from Financial Activities

As per the analysis of financial statement of Wesfarmers, it is determined that the company tax rate is not the same in context to the firm’s accounting income. From the review of accounting income for the year 2017, it is reported as the US$2873 (Klammer, 2018). On the other hand, the accounting income for the year 2016 is gained as US$ 407 million.

(vii) Evaluation of deferred tax assets and liabilities which is recorded in the balance sheet

The deferred tax assets are considered as the non- current assets which is also the major part of the financial statement. The recording of deferred tax assets is done in the balance sheet. From the analysis, the main reason behind the reporting of deferred tax assets in the balance sheet is that taxable income for the corporation can be reduced which is helpful for business to gain the higher revenue from its operations (Tracy and Tracy, 2011). In relation to the deferred liability, it is communally depreciation and when the company needs to pay higher rate depreciation as per the different from the company act as it supports to minimize the amount of tax.  

(viii) The reporting about the current tax assets or income tax payable 

Yes, the company has recorded the current tax assets or income tax payable in the financial statement of business to treat. The income tax payable is recorded as AUS$ 292milion. In relation to this, the income tax assists and income tax payable are not the same because the tax assets is the amount which is basically recovered from the income tax authorities but at the same time, the income tax expenses is recorded in the balance sheet liability which is required to be paid by the business so these items are not same (Accountingtools, 2017).

(ix) Recoding of income tax expenses in the income and cash flow statement 

The income tax expenses and the income tax paid is not the same amount which is treated in the income statement and the cash flow statement. For the review of annual report of Wesfarmers for year 2017 the income tax paid is recorded as US$951 million but the income tax expenses is detained as the US$1265 million (Bellandi, 2012). The main reason behind this reporting of different as income tax paid and the income tax expenses that the income tax paid is the expenses which is treated as the liability for business but the expenses is depicted as the spending for the business so the both of the items are reported in different accounting aspect.                     

(x) The finding about the treatment of tax and corporate accounting 

The corporate accounting assessment was valuable to understand the cash flow statement’s items and the reporting of different activities under the categories of cash flow category. The above assessed information was useful to understand the other comprehensive items and it was confusing that there was not a judgemental reason for the recording of these in other comprehensive statement. On the other hand, it was also difficult to understand the differed tax assets and liability in the accounting treatment. Moreover, the income tax and income expenses were also typical to understand through the corporate accounting rules and regulations. In accordance to this, the tax treatment for the Wesfarmers was also complicated to report the expense and tax paid in the accounting statement.  But at the same time, the corporate accounting assessment was interesting to gain the good knowledge about the performance of company under the different accounting parameters.

Conclusion 

From the analysis of these corporate accounting aspects for the Wesfarmers business, it can be concluded that the cash flow statement was one of the major statement that is supportive to enhance the viability of business operations. In addition to this, the other income comprehensive statement was also crucial to understand about the treatment of concerned items. On the other hand, it can also be concluded that the income tax is also valuable for the business to treat in effective manner.

References

Accountingtools, (2017) Other Comprehensive Income. [Online]. Available at: https://www.accountingtools.com/articles/what-is-other-comprehensive-income.html (Accessed: May 23, 2018).

Al-Attar, A.M. and Maali, B.M., (2017) The Effect Of Earnings Quality On The Predictbaility Of Accruals And Cash Flow Models In Forcasting Future Cash Flows. The Journal of Developing Areas, 51(2), pp.45-58.

Bellandi, F. (2012) Dual Reporting for Equity and Other Comprehensive Income under IFRSs and U.S. GAAP. USA: John Wiley and Sons.

Bienias, C., Lehman, M. and Gentene, D. (2013) Century 21 Accounting: Multicolumn Journal. USA: Cengage Learning.

Downs, L.C., (2017) Financial Accounting USA: SAGE.

Easton, P., Vassallo, P. and Weisbrod, E., (2017) Accounting Earnings and Free Cash Flow. UK: Routledge.

Hewitt, M., Hodge, F. and Pratt, J., (2017) The Effects of the Method of Earnings Management and its Underlying Motive on Shareholders’ Assessments of Cash Flows, Trust in Managers, and Investment Decisions. USA: Cengage Learning.

Jury, T. (2012) Cash Flow Analysis and Forecasting: The Definitive Guide to Understanding and Using Published Cash Flow Data. USA: John Wiley and Sons.

Khansalar, E. and Namazi, M., (2017) Cash flow disaggregation and prediction of cash flow. Journal of Applied Accounting Research, 18(4), pp.464-479.

Klammer, T. (2018) Statement of Cash Flows: Preparation, Presentation, and Use. USA: John Wiley and Sons.

Ramachandran, N. and Ram, K. (2014) How to Read a Cash Flow Statement. Australia: McGraw-Hill Education.   

Reid, W. and Myddelton, D.R., (2017) The meaning of company accounts. UK: Routledge.

Stevanovi?, S., Belopavlovi?, G. and Lazarevi?-Morav?evi?, M., (2017) Creative Cash Flow Reporting–the Motivation and Opportunities. Economic analysis, 46(1-2), pp.28-39

Stice, D., Stice, E.K. and Stice, J.D., 2017. Cash Flow Problems Can Kill Profitable Companies. UK: Routledge.       

Tracy, J and Tracy, T. (2011) Cash Flow For Dummies. USA: John Wiley and Sons.

Wesfarmers, (2017) Wesfarmers: Annual Report 2017. [Online]. Available at: https://www.wesfarmers.com.au/docs/default-source/reports/j000901-ar17_interactive_final.pdf?sfvrsn=4 (Accessed: May 24, 2018).