The assigned company is
Dominos Australia and the latest annual report available is for FY2017 or the
year ending on July 2, 2017.
(i) From your firm’s 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?
various items of equity are as follows.
Capital – This tends to represent the proceeds from the issuance of the shares
to the investors.
Reserves – Considering
that the company has significant transactions in foreign currency, hence the
effect of foreign translation along with the underlying hedging mechanism at
play is represented through this aspect.
Retained Earnings – The
remaining profits after distribution of dividends tend to be transferred into
retained earnings so as to close the profit account with zero outstanding
balance. The retained earnings represent the total of all the previous accumulated
profits and losses incurred by the company right from the inception.
The change in above
identified items of equity on a y-o-y basis is summarised below. All figures
are in $ 000’s.
no.45 Domino’s Pizza Enterprises Ltd
Annual report 2017 )
Figures in grey represent the FY2017 numbers
while that in white represent the FY2016 numbers.
Issued Capital – The
increase of $ 91, 486,000 is observed in issued capital primarily on account of
shares being issued under employee share option plan.
Reserves – There has been
a decrease in the various reserves primarily on account of losses owing to
foreign currency translation and hedging arrangements during FY2017.
Retained Earnings – There
has been an increase in the retained earnings owing to the transfer of surplus
profits after payment of dividends for FY2017.
What is your firm’s tax expense
in its latest financial statements?
For FY2017, the income tax expense for the company is $ 44,876,000 or $ 44.876
million. (Source pg.no.19 Domino’s Pizza
Enterprises Ltd Annual report 2017)
Is this figure the same as the
company tax rate times your firm’s accounting income? Explain why this is, or
is not, the case for your firm.
figure is not the same as the tax rate applicable times the firm’s accounting
income. This happens primarily on account of the adjustments arising due to
deferred tax which can potentially lead to incremental income or expenditure.
The following screenshot from the relevant notes to account elaborates the same
for the company.
(Source pg.no.64 Domino’s Pizza Enterprises Ltd Annual report 2017 )
(iv) Comment on deferred tax assets/liabilities that is
reported in the balance sheet articulating the possible reasons why they have
Ans For the year ending on July 2, 2017, the
company has not reported any deferred tax assets but has reported deferred tax
liabilities to the tune of $48,115,000 or $48.115 million. Owing to the
temporary differences between the carrying value for tax and accounting purpose
along with the difference in tax rates applicable for tax payment and tax
expense derived on the basis of the accounting income, deferred tax liability
is created. It reflects that the company expects to pay a higher amount of
income tax in the future on account of transaction undertaken in the given
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?
Ans There are current tax assets to the tune of
$470,000 as on July 2, 2017. The income tax payable is not the same as income
tax expense as income tax payable is derived on the basis of taxable income
computed using tax rules which is different from the accounting income. There
are tax deductions available for certain expenditure while for others such
deductions are not available and hence the taxable income is not the same as
profit before tax. The income tax expense is linked to accounting profit while
the income tax payable is linked to tax profits and hence the two differ.
Is the income tax expense shown
in the income statement same as the income tax paid shown in the cash flow
statement? If not why is the difference?
Ans There is a difference in the tax expense
($44.876 million) represented in the income statement
What do you find interesting,
confusing, surprising or difficult to understand about the treatment of tax in
your firm’s financial statements? What new insights, if any, have you gained
about how companies account for income tax as a result of examining your firm’s
tax expense in its accounts?
Ans The most confusing and surprising aspect
that I find about the tax treatment of
the company assigned is the creation of deferred tax liabilities and the
computation of the same. This process must be exceptionally complicated
considering the difference in the underlying accounting norms and the taxation
rules put in place by the ATO. Also, it was interesting to note that even the
tax expense is not without adjustments from deferred tax components and other
adjustments from prior years. A critical new insight regarding tax treatment
which I gained is how companies tend to
compute tax according to the accounting norms and also the tax rules and manage
to reconcile the differences between the two through the creation of deferred
tax assets and liabilities as may be the requirement.