Accounting Treatment Along The Income Tax Disclosures †Free Samples

Question: Discuss about the Accounting Treatment Along The Income Tax Disclosures. Answer: Introduction: The current report depicts a brief overview of the existing accounting treatment along the income tax disclosures. The first section of the report deals with the construction of a literature review on HKAS 12 by concentrating on decision usefulness. This is used to ascertain whether the recording of deferred tax assets and deferred tax liabilities misleaders the users and whether the income tax disclosures adds or eliminates the confusion. Along with this, the financial statement of Hutchison has been evaluated, which has considerable effect on deferred tax assets and deferred tax liabilities on the ability of the users to gain an insight of the organisational performance and financial position. For supporting this, pertinent ratio analysis has been carried out to compare the financial statements with and without deferred taxes. Hutchison Telecommunications Australia Limited: Hutchison Telecommunications Australia Limited is a listed firm having 50% interest in Vodafone Hutchison Australia Private Limited. On 9th June 2009, Hutchison has merged with Vodafone Australia in 50:50 joint ventures. At 31st December 2016, the tax losses brought forward of Hutchison have been $1,370,000 (2015: $1,417,000) and these have been recouped. However, no deferred tax asset has been realised both in 2015 and in 2016 in relation to those losses. Depending on the long-term industrial analysis and the operating initiatives of Hutchison, the recognition of assets is carried out depending on the detailed financial modelling of the future taxable profits. The organisation has suffered a loss before tax of $63,453,000 in 2016 and $182,798,000 in 2015. Henceforth, there is existence of income tax benefit after the completion of reconciliation. The taxation of Hutchison has no income tax expense in 2016 (2015: $70,000); however, it has deferred tax liability only. The organisation has not recognised any deferred tax asset for 2015 and 2016, while the deferred tax liability has been recognised as $2,000 in 2016 and $63,000 in 2015. However, the organisation has carried out numerical reconciliation of the income tax expense to prima facie tax payable and the amount has fallen from $163,753 in 2015 to $63,453. This loss has been deducted from the share of loss of joint venture and after that, deferred tax on temporary difference unrecognised has been added. As a result, the income tax expense is nil in 2016 (2015: $70,000). In addition, all the unused tax losses have been utilised on the part of the Australian organisations. The tax loss benefit would be obtained, in case; the entity bringing forward the loss obtains any future assessable income and an amount adequate to allow the benefit from the deductions for the losses to be recognised. The organisation needs to adhere to the conditions for deductibility imposed on the part of the tax legislation. In order to minimise current tax expense, Hutchison has recouped tax losses, which is deducted from the opening unrecognised tax losses, to arrive at the unused tax losses, for which no deferred taxes have been realised. As a result, the potential tax benefit has been $53,769,000 (2015: 55,139,000). However, it could be inferred that both deferred tax assets and deferred tax liability do not carry much value to the users of the financial statements and hence, the chance of misleading is minimal in this case. References: Hutchison.com.au. (2017).Financial Reports - Hutchison Australia. [online] Available at: https://www.hutchison.com.au/investor-centre/financial-reports/ [Accessed 23 Oct. 2017]. Jordan, C.E., 2016. FASB's New Standard for Classifying Deferred Taxes.The CPA Journal,86(7), p.22. Laux, R.C., 2013. The association between deferred tax assets and liabilities and future tax payments.The Accounting Review,88(4), pp.1357-1383. Lubbe, I., Modack, G. and Watson, A., 2014. Financial Accounting GAAP Principles.OUP Catalogue. Small, R., Yasseen, Y. and Jansen, J., 2016. Accounting for deferred taxation: accounting technical.Professional Accountant,2016(27), pp.14-16.