SinoGas & Energy Holdings Limited (“Sino Gas”) 1) Changesin Equity:In any company the changes inequity is or several reasons such as company issued new ordinary shares,reserves, share based payments and retain earnings. The equity is raised as thecompany wants to increase its capital and want some funding which may fulfillthe need of its future operations.The increase in Sino Gas equity isfor the following reasons:i) Issued capitalii) Reserves IssuedCapital: In 2016 Company issue 695,345 ordinaryshares under Company’s short-term incentive (STI).
This incentive is given toemployees for different reasons to motivate them or to retain them in thecompany. These Short term incentive are based on the 2014 (STI). Last yearthese incentives were 3,400,000 ordinary shares. Reserves:These reserves are used to record the value of equity benefits.
These are providedto employees, directors as part of their remuneration and to suppliers aspayments for their services (IFRS 2).These reserves increased by 554,156USD during the year. These reserves include the share options, the incentiveamount and the performance based payment to the employees and to the directors.During the year 2016 no performanceright share issue are exercised from the employees. Also 750,000 employeeperformance rights lapsed in 2016. In 2016 total transfer of share for thesettlement of performance rights are 99,179 USD. The share based payments expensefor the year is 499,115 USD.
The calculation of share based payments dependsupon how many employees exercised their rights and number of shares issued andthe year calculation. 2) Executivesummary This summary is an analysis of thefinancial operation and financial performance of the Sino Gas for the yearended 2016. The company is facing loss fromcouple of years. The revenue is increased significantly but on the other handthe loss and the interest are also increased by same amount.
The overallperformance of the company not satisfactory and there is a risk that ifconditions are getting worse the company may not able to operate properly infuture (going concern).The company’s cash and cashequivalent have decreased significantly. And the trade payable is also doubledfrom the past increasing the liability and the liquidity ratio are alsoincreasing. 3) Tax Tax rate of Sino Gas is 30 %. Thecompany is net loss before tax for the year is USD (7,340,734) on the basis ofthis company will pay less tax as compare to the actual payment which is USD(2,202,220). The expense includes taxattributable to branch office in china, the deferred tax asset carried forwardand the non deductable and non assessable items which is about 2,644,585 USD.Due to loss in this year it will create tax benefit and it reduces the tax by2,202,220 USD and the tax expense for the year is 442,365 USD.This is according to the company’stax calculation which may be different as compared to the calculation of thetax authorities.
4) Differencebetween tax charged: The tax is charged on the income byapplying the tax rate. As the company is facing loss from couple of years thenthe tax charged figure is varies as the loss in the income is tax saving. Lastyear’s income tax asset is carried forward to this year as deferred tax assetwhich will less the tax figure.Current tax saving is 2,202,220 USDwhich treated as tax income tax asset not in term of money but it will help interm of minimizing the tax expense.
This is not the tax for the year becausethe tax on the subsidiary is also included in it as well as any tax liabilityfrom previous year due to the change in income tax expense and income tax billpaid last year.The current income tax expense inincome statement is 442,365 USD. Which may be different from income statementfigure shown in financial statement which is in case of Sino Gas is notmentioned. The reason is that the previous tax is also nil due to loss bear bythe company. 4)Comment on deferred tax assets /liabilities that are reported in the balance sheet articulating the possiblereasons why they have been recorded. Deferred tax asset:Deferred tax asset is accountingterm which refers to a situation in which a business has overpaid tax or paidits tax in advance on its statement of financial position.
Thesetaxes are then eventually returned to businesses on the other hand we can sayits tax relief. The over-payment is treated as an asset for the company.Deferred tax asset conceptually be compared to rent paid in advance as a refundableinsurance premiums; but the business not had cash in hand, it have comparablevalue, and it must be reflected in its financial statements.The example of a deferred tax assetis the carry-over of losses as this is the simplest example.
If business incursa loss in a financial year as Sino Gas, it usually is entitled to use loss tolower its taxable income in following years. In that sense, the loss is anasset.Deferred tax liability:Deferred tax liability arises wherea company’s real-world tax bill is lower than its financial statements suggestit should be. It is due to the differences between tax accounting rules and thestandards on accounting practices.
The liability signals that the companyremains under a tax obligation. Example may includes revaluation ofan asset where the depreciation is charged on the revalued amount but the taxauthorities don’t have knowledge about the revaluation and less tax is preparedwhich cause deferred tax liability. (5)Why is the income taxpayable not the same as income tax expense? During the year the company bears aloss as we have discussed in the deferred tax asset and deferred tax. The losswill result in a tax saving and it will reduce the tax figure which isconsidered as deferred tax asset.
Loss for the year: 7,340,733 USDBy applying the tax rate thecurrent tax saving or on the other hand current tax asset is 2,202,220. This isused in offsetting tax which is applied on other incomes such as tax on theincome from subsidiary, other things such as any kind of deferred tax liabilitywhich is carried forward from previous year.After offsetting all allowable taxthe current tax asset which is carried forward to the next years is 1,123,405We will discuss about current taxasset or current tax income reasons:This is due to accounting ruleswhich businesses are following while preparing financial results are usuallydifferent. This difference is due to the rules they are following whenpreparing their income taxes and the actual income tax rules. Which results,the amount of tax which company figures it should pay based on the reportedprofit figure will be different from actual tax bills.
This change shows in thecompany’s financial statements as a difference between income tax expense andincome tax payable which is termed as deferred tax. The figure of income tax expensethat company has calculated and which company owes in taxes that are basis ofthe business accounting rules. The company reports this expense on its incomestatement. Actual amount that company owes is income tax payable which arebased on the rules of tax code.
Income tax payable appears on the statement offinancial position as a liability until the company actually pays the tax bill.Differences in the financial andthe tax accounting are supposed to even out over time. With depreciation to useexample the two systems eventually depreciate the same amount of value thedifference is just in the timing.
So the reason is company’s income tax expensewhich may be higher than its actual tax bill but also at some point in thefuture the bill will be higher than tax expense. Conversely if the tax expenseis lower than the actual tax bill this year a future tax bill will be higherthan the expense. When there is a company’s income tax expense different fromactual tax bill then the difference must appear in balance sheet which can beused later.In simple words we can say that thedifference between the tax expense and the tax paid is creating the deferredtax asset or deferred income tax. The difference will result in tax saving orincreasing liability in next year. 6)Difference between tax expense andtax paid: The income tax paid is not same asthe income tax expense.
The difference in tax expense and tax paid is the taxpaid is the amount which is paid by the company during year and the tax amountis the figure which is total tax expense for this year and the amount companyowes. As tax paid in arrears and in the next year so this change is happening.The company is facing loss fromcouple of year, so the tax payable is not mentioned in the company’s cash flowstatement. And company is not receiving tax bills from couple of years.
The tax paid is the item ofstatement of profit or loss on the other hand the tax expense is treated asliability of the company and is item of statement of financial position.If any difference is recorded inthe company then this will be deferred to next year’s financial statement asdeferred tax asset or deferred tax liability as mentioned above.As in case of Sino Gas the taxexpense for the year is 442,365 USD. This amount is deferred expense for theyear as it is treated as allowable tax expense from deferred income. There is no tax payable as thecompany has suffered loss in the last year which is considered as tax savingfor the company. And reduced the tax amount The accounting rules whichbusinesses follow while reporting financial results are usually different.
Thisdifference is due to the rules they follow when preparing their income taxesand the actual income tax rules. The tax bill and the amount of tax whichcompany calculate based on the profit are different. This difference is alsoshown in the statement of financial position of the company and the statementof comprehensive income as income tax expense and the income tax payable. Thisdifference is termed as deferred tax.
On the basis of the accounting rulethe company calculates tax which is known as the income tax expense. It isreported in the company’s statement of profit or loss. On the other hand thetax payable is the amount calculated using accounting tax code. This figure isappeared in the statement of financial position as liability. This appears asliability until it is paid.
The difference in the financial statementcomes to know with the time. This difference is causing income tax asset andincome tax liability. The income tax asset is actually the excessive tax paidin the previous year as well as the tax liability is liability the company paytax in less amount as compare to the tax which should be paid. 7) Facts aboutRecording Tax: The Australian tax system the taxrate for small entities is 28.5 % and for large entities its 30 %.
As Sino Gasis large company the effective tax rate applies is 30 %. This is also shown inthe statement of profit or loss. As the company is facing loss from couple ofyears the tax rate is still 30 % but it will be treated as tax relief and whichwill be deducted from the future tax on profit.Recently in case of Sino gas thecompany makes a loss of 7,340,734 USD as and the total tax according toAustralian tax system the tax benefit on this system would be after deductingsubsidiary income tax expense and after deducting items on which benefit is notreceived the total tax benefit for Sino gas is 1,874,793 USD.This is used against the future taxon allowable income as it is treated as deferred income.
As shown in the incomestatement B2 section of the report the deferred tax expense on for this year is442,365 USD which is from previous years.The current year income tax expenseis nil. As this company is facing losses from couple of years which is creatingdeferred income and the company is offsetting this amount.