Analysis Of Cash Flow, Comparative Evaluation, And Deferred Tax Assets Of JB Hi-Fi Limited

Analysis of the Cash flow Statement

With the increasing complexity of the taxation rules and regulation, each and every organization needs to implement proper strategic program and effective taxation compliance. In this report, JB Hi-Fi Company has been taken to evaluate the cash flow statement; deferred tax implication and implemented strategic program have been taken into consideration. The JB HI-FI Company is listed Company which has been running its business on international level.

1.Analysis of the Cash flow Statement

Cash flow statement is the statement which records all the inflow and outflow of cash in the particular year.  There are several changes in the cash flow statement which have been evaluated on the basis of changes in flow of cash in the particular year.

The non-cash items which is shown in the operating activities of company is AUD $ 191 million in 2017. It is AUD $ 34 million more as compared to last five year data. Company has increased is depreciation amount and also increased the operating expenses and income. The Cash outflow of company in the investing activities has increased to AUD $ 886 million which occurred due to the investment in buying machineries and plan in 2017.

In addition to this, financial activities of company have shown the inflow of cash around AUD $ 396 in 2017.

The cash outflow form the dividend has also increased to AUD $ 119 million which increased the outflow of cash in the business.  

The free cash flow of the company has changed by  AUD $ 21 million since last five years which is 12% higher as compared to last five year data. JB HI-FI Company needs to control its flow of cash if it wants to manage the flow of cash in its business (Robinson, Stomberg, and Towery, 2015).

JB HI FI LTD  (JBH) Statement of  CASH FLOW
Fiscal year ends in June. AUD in millions except per share data.	2017-06	2016-06	2015-06	2014-06	2013-06
Net cash provided by operating activities	191	185	180	41	156
Net cash used for investing activities	-886	-52	-44	-38	-38
Net cash provided by (used for) financing activities	716	-131	-130	-28	-91
Free cash flow	142	133	137	5	121

Interpretation

The free Cash flow statement of JB Hi-Fi Limited has gone down to AUD $ 121 million. It has observed that Company has increased the inflow of cash in its financial activities and at the same time it has increased its outflow from the investing activities by 18% since last five years.  The cash flow changes in the JB Hi- Fi has shown good amount of flow which might shows that company will grow effectively in long run

3.There are several items which have been recorded in the financial statement of t JB Hi-Fi Limited such as Total sales, Operating and non-operating expenses, gross revenue, interest expenses and provision for doubtful debts and taxes (Towery, 2017). 

JB HI FI LTD  (JBH) Cash Flow Flag INCOME STATEMENT
Fiscal year ends in June. AUD in millions except per share data.	2017-06	2016-06	2015-06	2014-06	2013-06
Revenue	5628	3954	3652	3484	3308
Cost of revenue	4398	3089	2854	2745	2610
Gross profit	1230	865	798	739	699
Operating expenses
Sales, General and administrative	1434	1006	931	884	839
Other operating expenses	-472	-361	-334	-336	-318
Total operating expenses	963	644	597	548	521
Operating income	268	221	201	191	178
Interest Expense	11	4	6	9	10
Other income (expense)	2	1	1	0	1
Income before income taxes	259	218	196	183	168
Provision for income taxes	87	66	59	54	51

 It is observed that the cash flow statement does not include the non-cash transaction which negatively impacts the financial activities of the business (Watson, 2017). 

4.As per my perception only those items which have impact on the net profit of company will be recorded in the financial statement. It covers all the revenue and expenses related to the current year only. The flow of tax and interest expenses recording in the books of accounts of the company will be recorded in the income statement of the company (Haswell, and Langfield?Smith, 2008). 

Comparative analysis of the all three main flow of activities

5.Income statement of the company records all the operating and revenue expenses of the Company. There are several items which have been recorded in the financial statement of t JB Hi-Fi Limited such as Total sales, Operating and non-operating expenses, gross revenue, interest expenses and provision for doubtful debts and taxes. The main differences between the flows of the profit in the cash flow statement are different from the profit and loss account of the company. The main reason behind the difference between the items recorded in the financial statement of company is based on the nature of transactions. Only that transaction which is having monetary impact on the company will be recorded in the cash flow statement. On the other hand, income statements record all the transactions which relates to current year, irrespective of their nature (Li, and Tran, 2016).

Each and every organization needs to pay tax to government as their legal obligation. Tax is the amount charged on the profit earned by company and paid to government. JB HI-FI Company has paid tax of AUD $ 86.8 million in 2016 which have gone down to AUD $ 65.6 million in 2017 due to its decreased net profit (Bond, Govendir, and Wells, 2016).

Particular(AUD $ in million)	2016	2017
Income tax expenses	86.8	65.6

The interest expenses have also increased by JB HI-FI which eventually reduces the tax payment of company due to the available deduction on the profit (Dahmash, . 2007)  

7.The annual report of company has shown that company has increased its tax payment since last year. This is found that the tax amount shown in the income statement of company is not sae with the company’s tax rate time’s expenses shown (JB HI-FI, 2017). 

Explain, why this is with reason

The company’s tax rate time’s expenses are the amount of tax computed on the basis of the tax rate charged on the profit earned by the company (Heijker, 2012).  It reflects the computation of the 30%* AUD $ 259. On the other hand, the tax amount paid by JB HI-FI company is also AUD $ 65.6 million which is too low as. As per the company’s tax rate time’s expenses, the amount of tax should be AUD $ 77.7 million which is way higher than the tax paid by JB HI-FI Company (Dagwell, Wines, and Lambert, 2015).

The main reason of changes in both the tax payment is given as below

• The treatment of the tax payment in the books of accounts is done on the basis of income tax rules and regulation. On the other hand, company’s tax rate time’s expenses computation is done on the basis of the manual computation.
• There are main two other reason of the differences between the tax computations is as below (Murray, 2007).

1. The revenue and expenses charged in the books of accounts of company is done on the basis of income tax rules while the manual calculation tax rate is based on the % of tax and profit computed as per the accounting rules and regulation.
2. There is difference for the recording of the bad debts, provision for the doubtful debts, depreciation and other provision as per the income tax rules AASB-112 and accounting rules (Mear, 2017).
3. Differences between the accounting rules and regulation and income tax rules as per the AASB 112 need to be assessed by the company. If in case, there is differences income tax rules will override the accounting rules.

8.It is considered that the deferred tax liabilities shown in the balance sheet is AUD $ 8.2 million. The deferred tax liabilities is recognized and carried forward to the extent to which it is reasonably sufficient future taxable income against the deferred tax assets. The treatment of the recording of the tax in the income statement is different as per the accounting rules taxation standard as per the AASB 112. If company paid higher tax as per the income tax rules as compared to the tax computation on the basis of accounting rules then the same would be recorded as deferred tax assets. If the payment is less in this case then the remaining amount would be recorded as deferred tax liabilities (JB HI-FI, 2017).

Particular (AUD $ million)	2017	2016
Deferred tax liabilities	8.2	0

Items reported in the other comprehensive income statement

9.Current tax assets and Income tax recorded in the books of accounts

The current tax paid by JB Hi-Fi Company is AUD $ 4.9 million in which increased to AUD $ 9 million in 2017 (JB HI-FI, 2017).

The income tax payable is the amount to be paid by company as per the taxation rules and AASB 112 ( Felski, 2017).

The deferred tax payment of the JB HI FI company is AUD $ 8.5 million

Particular(AUD $ in million)	2016	2017
Income tax payable	4.9	9

Why the income tax payment is not same with the income tax payable 

The main reason of differences between the tax payment shown in the profit and loss account and income tax payable is related to its nature of recording.

• The income tax payment relates to the present year and charged as revenue expenses in the profit and loss account.
• The income tax payable is recorded in the balance sheet of company as liabilities which show the collective liabilities of the tax payment which company needs to pay (Nuryanah, and Islam, 2015).

10.The cash flow statement is accompanied with the flow of cash either for inflow and outflow.

The income tax payment shows the cash outflow of capital i.e. $98.5 million.

The income tax expenses shown in the books of accounts of company covers payment of tax in the present year which company needs to make (Goodwin, et al., 2017). 

Reason

Cash flow statement shows the outflow of cash tax payment in the present year irrespective of the fact whether it relates to previous year or next year. The non-cash items of the operating activities of company is AUD $ 191 million in 2017.. The Cash outflow of company in the investing activities has increased to AUD $ 886 million which occurred due to the investment in buying machineries and plan in 2017. It shows that company has increased its cash inflow and outflow since last year which shows that company needs to increase its liquidity position.

On the other hand, tax recording in the profit and loss account of company is done as per the  AASB112 (Kusuma, 2009).

11.Treatment of the Tax

Interesting thing

• The interesting thing about the tax payment is that tax recording as per the AASB-112 increase the tax blockage and tax implication on the Company.
• It is hard for the company to determine the exact tax implication due to the sudden changes in the taxation rules.

Surprising thing

It is surprising thing to know that JB HI-FI Company cannot record all the deferred tax assets and deferred tax liabilities in its books of accounts at the same time (JB HI-FI, 2017).

Difficulty in recorded the entire tax amount

The difficulty to record the tax payment arises when there are changes or amendment in the taxation rules and regulation given under AASB 112 (Stoianoff, and Kaidonis, 2015). The main difficulty arises due to the wrong recording of the deferred tax in the books of account. If in case there is contradiction between the income tax rules and accounting rules then company will comply with the income tax rules to make its financial statement.

Conclusion 

The main reason for the differences in the tax amount in the cash flow statement and income statement is based on its recording concept and different accounting standards. Each and every statement of the company is prepared for the particular purpose. Now in the end, it could be inferred that JB Hi-Fi Company has effective business and had shown the deferred tax payment in its books of accounts.  It has been observed that company has complied with the all the rules, regulations and applicable standards of the AASB 112. It has also increased the transparency of its financial reporting to its stakeholders.

References

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 Dagwell, R., Wines, G. and Lambert, C., 2015. Corporate accounting in Australia. Pearson Higher Education AU.

Dahmash, F.N., 2007. An Examination of the Value Relevance and Bias in the Accounting Treatment of Intangible Assets in Australia and the US Over the Period 1994-2003 Using the Feltham and Ohlson (1995) Framework. University of Western Australia.

Felski, E.A., 2017. How Does Local Adoption of IFRS for those Countries Who Modify IFRS by Design, Impair Comparability over Countries Who have not Adapted IFRS?. Journal of International Accounting Research., 18(1), 46-62

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JB HI-FI, 2017., Annual report., [Online]., Available from https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_JBH_2016.pdf  [Accessed 14th May, 2018].

Kusuma, H., 2009. The information content of the cash flow statement: An empirical investigation (Doctoral dissertation, Victoria University of Technology). 12(1), 44-64.

Li, E.X. and Tran, A.V., 2016. An Empirical Analysis of the Tax Burden of Mining Firms versus Non-Mining Firms in Australia. Austl. Tax F., 31, p.167.

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Murray, J.H., 2007. TaxaTion of financial arrangeMenTs—furTHer DevelopMenTs. The APPEA Journal, 47(1), pp.443-468.

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