Tax Analysis Of Genworth Mortgage Insurance †myassintment.com

Question: 1. From your firms financial statement, list each item of equity and write your understanding of each item. Discuss any changes in each item of equity for your firm over the past year articulating the reasons for the change. 2. What is your firms tax expense in its latest financial statements? 3. Is this figure the same as the company tax rate times your firms accounting income? Explain why this is, or is not, the case for your firm. 4. Comment on deferred tax assets/liabilities that is reported in the balance sheet articulating the possible reasons why they have been recorded. 5. Is there any current tax assets or income tax payable recorded by your company? Why is the income tax payable not the same as income tax expense? Answer: Answer 1 The annual report of Genworth Mortgage Insurance Australia Ltd has shown three parts of the equity. Common Stock Other Accumulated profit Retained earnings or distributable profit Common Stock is also known as contributed capital. It is paid up capital which reflects the amount of cash and paid up and other assets that stakeholders had given to corporate in exchange for the shares or stock in company. It is evaluated that Common Stock has decreased equity capital by 40% since last four years. In 2013, Company was having AUD $ 2,074 million equity capital which decreased to AUD $ 1354 million. Reserve or retained earnings are the business profit which has been kept to strengthen the businesss financial position. This amount of capital is also known as accumulated profit which company has arranged from its earned profit throughout the time (Brigham and Ehrhardt, 2013). In addition to this, accumulated profit of company is negative which is not good indicator for company (Genworth Mortgage Insurance Australia Ltd, 2017). Equity (Amount in dollar million) ($M) 2017 2016 Common stock 1156 1354 Accumulated profit (471) (473) Retained earning 1133 1087 Total equity 4232 3833 Answer 2 It is evaluated that tax is the amount of money which is charged on the profit earned by company. Genworth Mortgage Insurance Australia Ltd has been paying high amount of tax and failed to manage effective tax planning program. However, since last two years, tax expenses of Genworth Mortgage Insurance Australia Ltd have gone down due to decreased in its annual income. In 2016, Genworth Mortgage Insurance company has paid income tax expenses of AUD $ 9 7 million which reduced to AUD $ 64 million in 2016. Particular(AUD $ in million) 2015 2016 Income tax expenses 97 67 Nonetheless, Company has decreased its tax payment by increased the tax deductible expenses and increasing the overall interest expenses. It is observed that company has increased the interest expenses which eventually reduced the tax payment to government (Bekaert and Hodrick, 2017). Answer 3 After going through the annual report of Genworth Mortgage Insurance Australia Ltd, it is considered that Companys tax expenses shown in balance sheet is not the same amount of tax rate times. Genworth Mortgage Insurance Australia Ltd has paid AUD $ 97 million tax expenses in 2017 which covers the entire deferred tax amount. At the same time, Tax rate times of Genworth Mortgage Insurance company has been computed by using accounting income* 30% tax rate, i.e. 156*30%. This amount is AUD $ 46.8 million. This would result to differences in tax expense shown in the financial statements and company tax rates accounting income (Garrett, Hoitash, and Prawitt, 2014). Explain why this Reason of differences between Companys tax expenses shown in balance sheet and amount of tax rate times on accounting income The treatment of charging tax on the earned profit of company is different as per the accounting rules and taxation rules and regulations. The tax expenses shown in the financial statement of company is computed as per the taxation rules and regulations and tax amount computed manually is based on the accounting income. The differences between two taxes arise due to main two reasons. First differences is related to items of revenue and expenses shown in the profit and loss account and the items which are considered as revenue, expenses and other expenses which deductible expenses as per the tax rules. Depreciation accounting, recording of donation and charging bed debts are different as per the accounting and income tax rules AASB-122. Answer 4 After going through the annual report of Genworth Mortgage Insurance Australia Ltd, it is considered that deferred tax assets is AUD $ 10 million. This deferred tax amount should be recognized and carried forward only to the limit that it is reasonably certainty that sufficient future taxable income against which deferred tax assets will be realised. It is observed that company has paid higher tax to government as per the income tax rule and regualtions (Kundakchyan and Zulfakarova, 2014). It is considered that accounting income and taxable income are not same and that is why, we see the recording of deferred tax assets and deferred tax liabilities in the books of accounts of company. For instance, if company finds that due to the difference between accounting and income tax provision, if company has charged higher tax revenue by considering accounting rules and regulations then all the excess tax payment will be shown as deferred tax assets. On the other hand, if company charged low er tax as per the accounting rules as compared to tax rules and regulations then difference in amount would be shown as deferred tax liabilities (Genworth Mortgage Insurance Australia Ltd, 2017). Genworth Mortgage Insurance Australia Ltd has shown Deferred tax amount in its assets side of balance sheet which reflects that company may take refunds from the government in case of changes in tax rules and regulations. Particular (AUD $ million) 2017 2016 Deferred tax assets 11 10 Answer 5 Current tax assets and other income tax payable by company It is considered that the current tax payable by company is zero in 2016. The income tax payable is recorded on the liabilities side of company which shows tax amount to be paid by company as per the tax rules and regulations given under AASB 122 (Laudon and Traver, 2013). The current tax assets reflect the amount which company might take from the government. In this case, Genworth Mortgage Insurance Australia Ltd has no current tax assets no any current tax liabilities. Deferred tax payment of company is AUD $ 10 million. Particular(AUD $ in million) 2016 2017 Income tax Expenses 86 67 Why income tax expenses is not same as the income tax payable The main reason is that income tax expenses charged on the profit of current year. On the other hand, income tax payable is the accumulation of outstanding tax which company will pay in future and shown on the liabilities side of balance sheet (Genworth Mortgage Insurance Australia Ltd, 2017). Answer 6 Is the income tax expense shown in the income statement same as the income tax paid shown in the cash flow statement? If not No, the incomes tax expenses, shown in the income statement are not same as the income tax payment shown in the cash flow statement. Why are the differences? Cash flow statement reflects the cash outflow and inflow of money in the current years. The cash flow of income tax in current year is AUD $ 88 million which covers all the tax payment by the company in current year. It may include tax for present and future period. On the other hand, tax payment shown in the profit and loss account is charged for the current year profit as per the taxation rules of AASB122. The cash flow statement reflects all the tax payment either related to current, previous and future year. On the other hand, tax charged in the income statement, is charged on the current year profit of company. The current tax payment shown in the profit and loss account is AUD $ 67 million. Answer 7 Treatment of tax in your firms financial statements Interesting thing about the recorded its entire tax amount The main interesting thing about the recorded its entire tax amount is related to recording of tax as per the accounting rules and regulation and income tax rules as per the AASB-122. It reflects the blockage of high amount of cash in the business. Surprising thing about the recorded its entire tax amount The main surprising thing about the Recording of its entire tax amount of Genworth Mortgage Insurance Australia Ltd is related to companys corporate governance program and recording process of tax in the annual report of company. Company can never have deferred assets and deferred liabilities at the same time in its balance sheet (Genworth Mortgage Insurance Australia Ltd, 2017). Difficulty in recorded the entire tax amount Genworth Mortgage Insurance Australia Ltdmay find difficult to record its deferred tax amount. It has no current tax payable and no current tax assets in its books of accounts. Stakeholders of Genworth Mortgage Insurance Australia Ltd, 2017may find difficult to bifurcate taxation amount by considering taxation rules and regulation as per AASB-122 and accounting rules and regulation (Genworth Mortgage Insurance Australia Ltd, 2017). New insight about the company account for the income tax The main insight about the company account for the income tax is related to how company formulate its financial statement as per the income tax rules and regulations. Company has zero amount of current tax payable and current tax assets in its books of account. References Bekaert, G. and Hodrick, R., 2017.International financial management. Cambridge University Press. Brigham, E.F. and Ehrhardt, M.C., 2013.Financial management: Theory practice. Cengage Learning. Garrett, J., Hoitash, R. and Prawitt, D.F., 2014. Trust and financial reporting quality.Journal of Accounting Research,52(5), pp.1087-1125. Genworth Mortgage Insurance Australia Ltd, 2017, annual report, Retrieved on 21st January, 2017 from https://investor.genworth.com.au/Investor-Centre/?page=reports-and-presentations Kundakchyan, R.M. and Zulfakarova, L.F., 2014. Current issues of optimal capital structure based on forecasting financial performance of the company.Life Science Journal,11(6s), pp.368-371. Laudon, K.C. and Traver, C.G., 2013.E-commerce. Pearson.