Business Operations of Pacific Turbine Brisbane
Pacific Turbine Brisbane is the trading name of PTB Group Limited. It’s group is engaged in the business of aviation. It is a specialized engine workshop and sales facility which is located near the Brisbane Airport providing solution to its customers. The primary activities of the company are discussed below:
- It trades in spare parts for engines and components.
- It also trades in parts for its customers.
- It trades in long term and short term aircraft. It also manages repair and trading in turbine engines and even its component parts.
- Long term engine management contracts for the activities mentioned above which provide its customers with a guaranteed efficient, expert and even timely service for all the components and component needs. (PacificTurbine, 2017)
The group had four reportable segments. The reportable segments are given below:
- PTB: it covers the operations of the holding company specializing in PT6 and TPE331 Turboprop engines.
- IAP: it generally covers the operations of IAP Group Australia Ltd which used to trade in aircraft, airframes, jet aircraft engines and its related parts.
- Pacific Turbine USA: This was a new segment which came into existence in 2016. It covers operations of Pacific Turbine USA specializing in PT6 Turboprop engines. (PacificTurbine, pacificturbine.com.au, 2017)
- Emerald: it generally covers operation in PTB Emerald Pty Ltd. He was the owner of the aircraft acquired from Emerald Airways UK. These were leased to other airline operators under both the finance and the operating lease.
AASB 8 ‘Operating Segments’ clearly states that if a company is divided into various segments then it is to disclose all the segments in the financial statements. It can be identified based on the internal components of the Group which are regularly reviewed by the chief operating decision maker, so that they could allocate resources to segments and also to assess their performance. Operating segment can be defined based on the internal operations of the management. It is essential to disclose to measure the performance of each of the segment of the company.
Share Capital represents the amount invested in the company by its investors. It is a fund raised by the company in exchange of shares. If the company is issuing more shares than it has to obtain authorization to sel and issue all these additional shares. This can be done by increase in share capital.
Share Capital of the company has been changed over the years due to many acquisitions by the company. When a company is acquiring any other company then it would issue shares to the shareholders. Hence there would be an increase in the share capital of the company. This is the main reason why share capital would change.
A reserve account would include accumulated profits of the company. It is mainly set up so that company could purchase fixed assets, pay bonuses, pay debts or pay off any repairs or any other stuffs. The reason to maintain this account is to keep funds from being used for other purposes, such as paying dividend or buying back of shares.
Company was in losses so it would not have retained earnings. Instead it would have accumulated losses. Accumulated losses for the company for the year ended 30th June 2016 was $10,292,000 and for the year ended 30th June 2015 was $10,759,000.
Retained earnings represents the accumulated profits earned by the company till date and accumulated losses represents the accumulated losses earned by the company till date.
In the company’s annual report, profit before income tax for the year ended 30th June 2016 was $3,668,000 and for the year ended 30th June 2015 was $2,690,000.
Disclosures of Operating Segment Information
The income tax expense of the company for the year ended 30th June 2016 was $1,101,000 and for the year ended 30th June 2015 was $727,000.
In this case we need to see whether company made profit or loss for the year ended 30th June 2016. Company had earned profit in the financial year 2016. The profit before tax for the year ended 30th June 2016 was $3,668,000. The rate of income tax for the year ended 30th June 2016 was 30%. Hence income tax expense as per this calculation would come to 30% of $3,668,000 = $1,100,400. But the actual income tax expense in the financial statement was $1,101,000 which was higher than the income tax computed above. The tax amount was higher in the financial statement by $600 which means that there would be some deferred tax liability.
Now since company had already charged income tax on that amount then it should not charge any income tax on the same amount again, otherwise it would be double taxation. To avoid double taxation company had charged lesser amount in the financial statements.
Tax reported in the financial statement of the company was different from the amount of tax paid by the company to the Australian Taxation Office. This amount would be different in most of the cases. Tax which is reported in the financial statement is the tax calculated on the profit earned before tax. Company would have paid advance tax as well in the beginning of the year, so this advance tax needs to be deducted from the income tax reported in the financial statement. Company would have taken some life insurance premium or any other deductions as well. So this also needs to be deducted from the gross total income of the company. The statement given below would explain properly the difference between the tax reported in the financial statements and the actual tax paid.
|
Particulars |
Amount |
|
Profit earned by the company (reported in financial statement) |
xxx |
|
Less: Deductions by the company (investments) |
(xxx) |
|
Total Income after deductions |
xxx |
|
Income tax (reported in financial statements) |
xxx |
|
Advance Tax paid/ Rebate |
(xxx) |
|
Income tax paid to Australian Taxation Office |
xxx |
To have a successful deal or a contract it is essential that both the investor and the investee has a good relationship. There should be a win-win situation in the relationship between investor and investee. There are no specific types of investee relationship, but there are certain features which needs to be present to have a successful relation. The features are given below:
- Investor must understand the needs of the investee. Both of them should understand each other’s need. Even if one is not fulfilled then win win situation cannot be achieved.
- Investee should also understand the needs of the investor. Even if one is not fulfilled then win win situation cannot be achieved.
- Terms and Conditions must be defined.Before getting into any relationship it is very essential that all the required terms and conditions must be defined.
- Misalignment should be identified. If there is any misalignment between investor and an investee then it should be aligned first. (HemendraKumar, 2017)
Control is a very relevant term used in the corporate world. If a company is controlling any other company it means that it is holding more than 50% shares of the company. A company who is controlling other company would be the holding company and the company getting controlled would be the subsidiary company.
Share Capital and Its Significance
Significant influence is different from control. If a company has significant influence over other company it means that company is holing 26% – 49% shares of the company. In this scenario company can just influence the decisions but cannot take any decision. To take any decision company should have a control over other company but not significant influence.
The subsidiaries of Pacific Turbine Brisbane is listed below:
- PTB Finance Ltd
- Pacific Turbine USA Pty Ltd
- Pacific Turbine Incorporation
- PTB (Emerald) Pty Ltd
- Aircraft Maintenance Services Ltd
- IAP Group Australia Pty Ltd
- International Air Parts UK Ltd
- PTB Emerald Limited
- Cargo Pty Ltd
All the above mentioned companies are 100% subsidiaries of Pacific Turbine Brisbane. All the companies were 100% subsidiaries in both the financial year 2015 and 2016
Consolidated financial statement has to be prepared when a company is the holding company of many other companies. It has to be prepared at the end of the financial year and at the end of every quarter. A consolidated financial statement should also be prepared as and when required by the management.
AASB 10 ‘Consolidated Financial Statements’ states that a company holding various other companies needs to prepare consolidated financial statements. This means that it is the holding company which needs to prepare consolidated financial statements. This means that there will be situations when a subsidiary company is also a holding company for many other companies. Then in this scenario even a subsidiary company has to prepare consolidated financial statement. In simple words if a company is holding any other company then it has to prepare consolidated financial statement. (Nexia, 2017)
There are certain process which needs to be followed in the process of consolidation. The process is discussed below:
- First it needs to be determine that which company is a holding company and which is a subsidiary company.
- List all the subsidiary and associate companies.
- All the information relating to the subsidiary and associate company needs to be taken by the holding company.
- It has to be ensured that all the companies are following the same fiscal period.
- Both the subsidiary company and the associate company needs to be separated. Associate companies are generally shown as investments in the Balance Sheet.
- Calculate Goodwill and minority interest for the holding company. Minority interest would be the amount which the holding company is not holding.
- Consolidate all the items in the financial statement.
Both the parent and the subsidiary company are shown in a single set of combined financial statements in the consolidation method. While equity method is completely different from consolidation method. Under the equity method parent company shows subsidiary company as investment in the asset side of the Balance Sheet.
In the process of consolidation one company either take over the other company or invests in the company. This is called acquisition process. After a company acquires another company, it needs to check that whether the price paid was more than the net assets of the company or not. If the price paid was more than the difference would be considered as goodwill. If the price paid is less than the assets then the difference would be considered as reserves.
In the consolidation process there are some assets which are revalued. The reason behind such revaluation is that the value during the time of assets should be different. It should be taken at fair market value.
Reserve Account and Its Reasons
Pacific Turbine Brisbane is not having any associates.
AASB 11 ‘Joint Arrangements’ describes the features of joint venture, joint operation and joint arrangement. Whenever two or more parties have an arrangement among themselves then such arrangement is known as joint arrangement. An arrangement would be considered as a joint arrangement only when the below mentioned two features are present in it: (AASB, aasb.gov.au, 2017)
- There must be a contractual agreement between both the parties.
- The above mentioned contractual agreement must give joint control to both the parties.
There are two kinds of joint arrangements, joint venture and a joint operation. A joint operation is a joint arrangement in which both the parties have a joint control of the arrangements. Such parties are called joint operators. A joint venture is also a joint arrangement where both the parties have joint control of the arrangement have rights to the net assets of the arrangement. Such parties are called joint ventures.
Pacific Turbine Brisbane is not part of any joint arrangement.
Whenever one company is acquiring any other company and paying more price than the actual net assets of the company, then the extra price is known as goodwill. Goodwill is an intangible asset since it does not exist physically. Goodwill is the company’s brand value, patent and technology. Goodwill is generally measured on the basis of the consideration paid to the company which was acquired. The extra compensation paid is considered as goodwill.
Goodwill is disclosed in the financial statement of the company. It has to be disclosed in Balance sheet of the company. Under Balance Sheet it has to be disclosed under Intangible Assets.
The company is carrying goodwill in its consolidated financial statements. It is carrying a goodwill since it has acquired various other companies. Goodwill will change overtime because there will be various other acquisitions or deletions. If a company is not holding any company anymore then goodwill needs to be removed. If a company is acquiring more companies then goodwill amount will be increased. There are instance where even the goodwill amount is revalued due to the fair market value.
References
AASB. (2017, April 24th). aasb.gov.au. Retrieved from aasb.gov.au: https://www.aasb.gov.au/admin/file/content102/c3/AASB8_02-07_ERDRjun10_07-09.pdf
AASB. (2017, April 24th). aasb.gov.au. Retrieved from aasb.gov.au: https://www.aasb.gov.au/admin/file/content105/c9/AASB11_08-11.pdf
ASIC. (2017, April 24th). asic.gov.au. Retrieved from asic.gov.au: https://asic.gov.au/for-business/running-a-company/shares/
ASIC. (2017, April 24th). moneysmart.gov.au. Retrieved from moneysmart.gov.au: https://www.moneysmart.gov.au/managing-your-money/managing-debts/consolidating-and-refinancing-debts
AustralianGovernment. (2017, April 24th). austlii.edu.au. Retrieved from austlii.edu.au: https://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/
AustralianGovernment. (2017, April 24th). legislation.gov.au/. Retrieved from legislation.gov.au/: https://www.legislation.gov.au/Details/F2011L01939
AustralianTaxationOffice. (2017, April 24th). ato.gov.au. Retrieved from ato.gov.au: https://www.ato.gov.au/rates/individual-income-tax-rates/
HemendraKumar. (2017, April 24th). entrepreneur.com. Retrieved from entrepreneur.com: https://www.entrepreneur.com/article/250394
https://rbt.treasury.gov.au/publications/paper3/download/ch4.pdf. (2017, April 24th). Retrieved from vhttps://rbt.treasury.gov.au/publications/paper3/download/ch4.pdf: https://rbt.treasury.gov.au/publications/paper3/download/ch4.pdf
Nexia. (2017, 2017 April). nexia.com.au. Retrieved from nexia.com.au: https://nexia.com.au/events/applying-aasb-10-consolidated-financial-statements
PacificTurbine. (2017, April 24th). pacificturbine.com.au. Retrieved from pacificturbine.com.au/: https://www.pacificturbine.com.au/wp-content/uploads/2016/07/PacificTurbineAnnualReport2016FinalFormatted.pdf
PacificTurbine. (2017, April 24th). pacificturbine.com.au. Retrieved from pacificturbine.com.au: https://www.pacificturbine.com.au/investors/
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