Operating activities
In the current report, Virgin Australia is chosen as a company that is positioned as mong the renowned airline organization within Australia and is listed within the Australian Securities Exchange (ASX) having a code of VAH. The cash flow statement of the company is segmented within investing, financing and operating activities (Bennedsen and Zeume 2017). Moreover, an identical amount has been is reported in the part of reconciliation of the net loss to the net cash from the business operations within the yearly report of the company. The items that are explained within the companies each activity head is elaborated under:
The major items explained within the head includes the receipts from the consumers, payments meant for the suppliers and employees, received finance income, paid finance costs and a few more. The consumer recepts are considered as the amounts attained from credit sales. For Virgin Australia, increase is gathered within the item fom$5,567.40 million in 2016 to $5,657.10 million in 2017, for the reason that it has strong credit policy (Burrell and Morgan 2017). The staffs along with the payment of suppliers are the amounts which are acquired by Virgin Group on credit along with salaries of the employees. In Virgin Group situation, increasing trend might be observed in the year 2017 because of additional purchases from the suppliers along with observing increase in the number of employees. Finance income is the attained sum for attained to use money for repayment on demand at a particular point of time. Increase in this item might be observed in 2017 as this is written off as a credit portion and the sales are deemed to be uncontrollable. Finance cost indicates the obligations and this has dropped in the company in the year 2017 because of decreased interest payments on the loans undertaken.
The major aspects those are listed within this section include plant, promptly and equipment proceeds from along with advances to the deposits along with others (DeZoort, Wilkins and Justice 2017). The payments associated with plant, proper and equipment is the incurred amounts that are deemed to be necessary to carry out business conducts. In addition, for the reason that these assets offer economic advantages to the company that is deemed as proceeds. It might also be gathered that Virgin Australia has decreased its investment in this aspects. Due to the same, this has not developed enough cash flows from these items as it has sold as an aspect of plant, equipment and property. The proceeds along with the payments associated with deposits serves as a financial instrument that is a contraindicating the repayment time and for receiving the interest payable. Virgin Australia has made several payments in comparison to the amounts than it has attained from deposits in the year 2017 because of increased interest payable rate.
Investing activities
The major items which are encompassed within this aspect include repayment of and proceed from the borrowings, equity distribution along with various items. The borrowings indicate the disbursed net amount to a borrower on the behalf of the lender within the loan agreement terms. It might also be gathered from the annual report of Virgin Australia that the proceeds firm borrowings have dropped in the year 2017. An increase has also been observed in borrowings repayment that was also observed in the same year. Equity distribution indicates the yearly cash flow that is offered to all its shareholders in the same year. In case of Virgin Group, the amount has decreased in 2017 as more focus has been put on retained earnings maximization.
From analysing the annual report of Virgin Australia it has been gathered that there are three cash flow segments such as investing, operating and financial activities. The comparative evaluation of such categories within the cash flow statement over three years is indicated under:
The above figure indicates the fact the net cash attained from operating activities is observed to decrease in the year 2016 in contrast to the year 2015 (Houdet, Quétier and Ding 2016). Moreover, certain considerable increase might also be in the year 2017 because of increased cash receipts from the finance income along with consumers. In contrast to that, the employed net cash is employed within investing activities has decreased over the period of three year basically because of because of decrease in investment within property, plant and equipment. Finally, cash is attained from financial activities because of the net proceeds from the shares issuance in the year 2017. For this reason, increase might be observed within cash along with cash equivalents of Virgin Australia in the year 2017 (Miao, Teoh And Zhu 2016).
As per the annual report of Virgin Asia Group in the year 2017, the major items listed in the comprehensive income statement includes foreign currency translation reserve, cash flow hedge reserve along with income tax advantage or expense (Leary and Roberts 2014).
It has been gathered that, the implementation of foreign currency translation reserve is conducted for interaction regarding the outcomes of foreign subsidiaries of the parent company to the reporting currency (Ferri and Göx 2018). The utilization of cash for hedging is conducted at the time a company intends to decrease the exposure taking place because of variations in cash flow of a liability or asset as certain changes in particular risk like rate of interest on debt instrument is associated with the floating rate. In addition, the income tax expense sources at the incurred amount on profit before tax of the company (Virginaustralia.com. 2018).
Financing activities
It has been gathered that, the elaborated net income view is deemed to be other comprehensive income. Virgin Group employs such statement for offering vital details in values related ith above mentioned items. The major cause that such items are explained within other comprehensive income statement is that they offer holistic and comprehensive overview of the drivers associated with business operations and for this reason, these are not disclosed within the income statement.
Tax expense is taken into consideration as a vital obligation of the company because of municipal, federal as well as state government of the country. In situation of Virgin Australia, it has not attained tax expense and this has attained income tax advantage in both the years 2016 and 2017. In the next year, it has attained income tax advantage of $103.8 million in comparison to $201.9 million in 2016 (Lian, Rupley, Wang and Zheng 2017).
Focussed on the annual report of Virgin Australia for the year 2017, it has been gathered that that company has dealt with loss before income tax in the years 2016 and 2017. It is clearly gathered from the annual report that this airline organization charges tax rate of 30% on its profit before tax income for attaining suitable net income (Ebrahim and Fattah 2015). Conversely, for the reason that the airline has experienced loss before income tax, it is not deemed likely to make income tax expense responsible. Moreover, it is also not likely to make sure whether the tax expense related with the airline requires to be explained within the company’s statement of income. This is also considered to be computed with tax rate of 30% on the profit before tax expense.
Deferred tax assets are observed to take place in such situations in which the companies experience additional taxes or consider making tax repayments on the financial assets. In contrast to that, deferred tax liabilities indicate the conditions in which the changes can be recognised in tax carrying amount along with profit related with corporate organizations. For Virgin Australia, the deferred tax assets are accountable for $1,017.6 million in the year 2017 that was observed to be $857.9 million in the year 2016 (Dechow and Tan 2017). In addition to that, the company’s deferred tax liabilities are accounted to be $463.4 million for the year 2017 in contrast to $434.4 million observed in the year 2016. Recognition focused on conducted deferred tax is carried out for the reason that high amount of depreciation is experienced because of variations in taxable depreciation rate along with depreciation amount. Deferred tax liabilities recognition is carried out because of temporary changes in the profits. This is because of which Virgin Australia Company is evidenced to attain tax exemptions in the year 2016 as well as 2017 (Mintz 2016).
Comparison of cash flow categories over three years
Payable income tax or the current tax asset is deemed as a vital factor for the Australian business firms. Considering the information provided in the annual report of Virgin Australia, it is gathered that the current tax assets include the anticipated tax payable. This also includes certain receivables on taxable loss or income for a particular period. These are measured with the support of tax rates along with tax laws enacted at the financial year. However, considering the situation of Virgin Australia it has been observed that the company has attained income tax advantages of $201.9 million 2016 and $103.8 million in 2017 (Collins, Hribar And Tian 2014). Moreover, an identical amount has been is reported in the part of reconciliation of the net loss to the net cash from the business operations within the yearly report of the company. The vital cause that is indicated by these two items is the same values for the reason that there are no excess expenses experienced on the behalf of the company in these two years (Parsa et al. 2018). The utilization of cash flow hedging is conducted at the time a company intends to decrease the exposure taking place because of variations in cash flow of a liability or asset as certain changes in particular risk like rate of interest on debt instrument is associated with the floating rate. In addition, the income tax expense serves the incurred amount on profit before tax of the company.
In accordance with the yearly report of the Virgin Australia in the year 2017, it might also be gathered that the company has not experienced any expense related with the income tax for the years over 2016 and 2017. Rather than that, it has also attained income tax advantage in the mentioned years (Christensen 2015). In addition, this is the major cause for which the paid income tax is not considered to be an item within the Virgin Australia company’s statement of cash flow. Virgin Australia is chosen as a company that is positioned as mong the renowned airline organization within Australia and is listed within the Australian Securities Exchange (ASX) having a code of VAH. The cash flow statement of the company is segmented within investing, financing and operating activities.
After accomplishing critical evacuation of the Virgin Australia’s tax treatment, the most influential item of the financial statement is recognised to be the fact that the company has experienced loss before incurrent income tax expense over the years from 2016 and 2017. This is the major reason for which it has attained income tax advantages. For this reason, it has turned out to be quite complex to associate the real tax income that is paid along with consideration to existing rate of tax in the country (Cañibano 2017). In addition, as no income tax income expense has been experienced. There is no mentioning of the income tax paid within the country. Along with that, considering the fact that no income tax expense has been implemented there is no mentioning of incurred income tax within Virgin Australia Company’s cash flow statement. Conversely, it has also been made for important disclosures regarding the benefits of income tax gathered. This has also facilitated in attaining knowledge regarding the treatment of tax.
References:
Bennedsen, M., and Zeume, S., 2017. Corporate tax havens and transparency. The Review of Financial Studies, 31(4), 1221-1264.
Burrell, G. and Morgan, G., 2017. Sociological paradigms and organisational analysis: Elements of the sociology of corporate life. Routledge.
Cañibano, L., 2017. Accounting and intangibles.
Christensen, D.M., 2015. Corporate accountability reporting and high-profile misconduct. The Accounting Review, 91(2), pp.377-399.
Collins, D. W., Hribar, P. And Tian, X. S., 2014. Cash flow asymmetry: Causes and implications for conditional conservatism research. Journal of Accounting and Economics, 58(2-3), 173-200.
Dechow, P.M. and Tan, S.T., 2017. How Do Accounting Practices Spread? An Examination of Law Firm Networks and Stock Option Backdating.
DeZoort, F.T., Wilkins, A. and Justice, S.E., 2017. Call for papers: The limits of accounting regulation. Journal of Accounting and Public Policy, 45, p.30Z.
Ebrahim, A. and Fattah, T.A., 2015. Journal of International Accounting, Auditing and Taxation. Journal of International Accounting, Auditing and Taxation, 24, pp.46-60.
Ferri, F. and Göx, R.F., 2018. Executive Compensation, Corporate Governance, and Say on Pay. Foundations and Trends® in Accounting, 12(1), pp.1-103.
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Leary, M.T. and Roberts, M.R., 2014. Do peer firms affect corporate financial policy?. The Journal of Finance, 69(1), pp.139-178.
Lian, Q., Rupley, K., Wang, Q. and Zheng, L., 2017. Corporate social responsibility and accounting restatements.
Miao, B., Teoh, S. H. And Zhu, Z., 2016. Limited attention, statement of cash flow disclosure, and the valuation of accruals. Review of Accounting Studies, 21(2), 473-515.
Mintz, S., 2016. Accounting for the public interest. Springer,.
Parsa, S., Roper, I., Muller-Camen, M. and Szigetvari, E., 2018, January. Have labour practices and human rights disclosures enhanced corporate accountability? The case of the GRI framework. In Accounting Forum. Elsevier.
Virginaustralia.com., 2018. Retrieved from https://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/webcontent/~edisp/2017-annual-report.pdf
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