1)     
Changes
in Equity:

In any company the changes in
equity is or several reasons such as company issued new ordinary shares,
reserves, share based payments and retain earnings. The equity is raised as the
company wants to increase its capital and want some funding which may fulfill
the need of its future operations.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

The increase in Sino Gas equity is
for the following reasons:

i)                   
Issued capital

ii)                 
Reserves

 

Issued
Capital: In 2016 Company issue 695,345 ordinary
shares under Company’s short-term incentive (STI). This incentive is given to
employees for different reasons to motivate them or to retain them in the
company. These Short term incentive are based on the 2014 (STI). Last year
these incentives were 3,400,000 ordinary shares.

 

 

Reserves:
These reserves are used to record the value of equity benefits. These are
provided to employees, directors as part of their remuneration and to suppliers
as payments for their services (IFRS 2).

These reserves increased by 554,156
USD during the year. These reserves include the share options, the incentive
amount and the performance based payment to the employees and to the directors.

During the year 2016 no performance
right share issue are exercised from the employees. Also 750,000 employee
performance rights lapsed in 2016. In 2016 total transfer of share for the
settlement of performance rights are 99,179 USD.

The share based payments expense
for the year is 499,115 USD. The calculation of share based payments depends
upon how many employees exercised their rights and number of shares issued and
the year calculation.

 

2)     
Executive
summary

 

This summary is an analysis of the
financial operation and financial performance of the Sino Gas for the year
ended 2016.

The company is facing loss from
couple of years. The revenue is increased significantly but on the other hand
the loss and the interest are also increased by same amount. The overall
performance of the company not satisfactory and there is a risk that if
conditions are getting worse the company may not able to operate properly in
future (going concern).

The company’s cash and cash
equivalent have decreased significantly. And the trade payable is also doubled
from the past increasing the liability and the liquidity ratio are also
increasing.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3) Tax

 

                                    

Tax rate of Sino Gas is 30 %. The
company is net loss before tax for the year is USD (7,340,734) on the basis of
this company will pay less tax as compare to the actual payment which is USD
(2,202,220).

The expense includes tax
attributable to branch office in china, the deferred tax asset carried forward
and 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 by
2,202,220 USD and the tax expense for the year is 442,365 USD.

This is according to the company’s
tax calculation which may be different as compared to the calculation of the
tax authorities.

 

 

3)     
Difference
between tax charged:

 

The tax is charged on the income by
applying the tax rate. As the company is facing loss from couple of years then
the tax charged figure is varies as the loss in the income is tax saving. Last
year’s income tax asset is carried forward to this year as deferred tax asset
which will less the tax figure.

Current tax saving is 2,202,220 USD
which treated as tax income tax asset not in term of money but it will help in
term of minimizing the tax expense. This is not the tax for the year because
the tax on the subsidiary is also included in it as well as any tax liability
from previous year due to the change in income tax expense and income tax bill
paid last year.

The current income tax expense in
income statement is 442,365 USD. Which may be different from income statement
figure shown in financial statement which is in case of Sino Gas is not
mentioned. The reason is that the previous tax is also nil due to loss bear by
the company.

 

 

4)
Comment on deferred tax assets /
liabilities that are reported in the balance sheet articulating the possible
reasons why they have been recorded.

 

Deferred tax asset:

Deferred tax asset is accounting
term which refers to a situation in which a business has overpaid tax or paid
its tax in advance on its statement of financial position. These
taxes are then eventually returned to businesses on the other hand we can say
its 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 refundable
insurance premiums; but the business not had cash in hand, it have comparable
value, and it must be reflected in its financial statements.

The example of a deferred tax asset
is the carry-over of losses as this is the simplest example. If business incurs
a loss in a financial year as Sino Gas, it usually is entitled to use loss to
lower its taxable income in following years. In that sense, the loss is an
asset.

Deferred tax liability:

Deferred tax liability arises where
a company’s real-world tax bill is lower than its financial statements suggest
it should be. It is due to the differences between tax accounting rules and the
standards on accounting practices. The liability signals that the company
remains under a tax obligation.

Example may includes revaluation of
an asset where the depreciation is charged on the revalued amount but the tax
authorities don’t have knowledge about the revaluation and less tax is prepared
which cause deferred tax liability.

 

 

 

 

 

(5)

Why is the income tax
payable not the same as income tax expense?

 

During the year the company bears a
loss as we have discussed in the deferred tax asset and deferred tax. The loss
will result in a tax saving and it will reduce the tax figure which is
considered as deferred tax asset.

Loss for the year: 7,340,733 USD

By applying the tax rate the
current tax saving or on the other hand current tax asset is 2,202,220. This is
used in offsetting tax which is applied on other incomes such as tax on the
income from subsidiary, other things such as any kind of deferred tax liability
which is carried forward from previous year.

After offsetting all allowable tax
the current tax asset which is carried forward to the next years is 1,123,405

We will discuss about current tax
asset or current tax income reasons:

This is due to accounting rules
which businesses are following while preparing financial results are usually
different. This difference is due to the rules they are following when
preparing their income taxes and the actual income tax rules. Which results,
the amount of tax which company figures it should pay based on the reported
profit figure will be different from actual tax bills. This change shows in the
company’s financial statements as a difference between income tax expense and
income tax payable which is termed as deferred tax.

 

Income tax expense is the figure
which company has calculated which company owes in taxes that are based on
standard business accounting rules. The company reports this expense on its
income statement. Income tax payable is actual amount that company owes which
are based on the rules of tax code. Income tax payable appears on the statement
of financial position as a liability until the company actually pays the tax
bill.

Differences in the financial and
the tax accounting are supposed to even out over time. With depreciation to use
example the two systems eventually depreciate the same amount of value the
difference is just in the timing. So the reason is company’s income tax expense
which may be higher than its actual tax bill but also at some point in the
future the bill will be higher than tax expense. Conversely if the tax expense
is lower than the actual tax bill this year a future tax bill will be higher
than the expense. When there is a company’s income tax expense different from
actual tax bill then the difference must appear in balance sheet which can be
used later.

In simple words we can say that the
difference between the tax expense and the tax paid is creating the deferred
tax asset or deferred income tax. The difference will result in tax saving or
increasing liability in next year.

 

 

 

6)
Difference between tax expense and
tax paid:

 

The income tax paid is not same as
the income tax expense. The difference in tax expense and tax paid is the tax
paid is the amount which is paid by the company during year and the tax amount
is the figure which is total tax expense for this year and the amount company
owes. As tax paid in arrears and in the next year so this change is happening.

The company is facing loss from
couple of year, so the tax payable is not mentioned in the company’s cash flow
statement. And company is not receiving tax bills from couple of years.

The tax paid is the item of
statement of profit or loss on the other hand the tax expense is treated as
liability of the company and is item of statement of financial position.

If any difference is recorded in
the company then this will be deferred to next year’s financial statement as
deferred tax asset or deferred tax liability as mentioned above.

As in case of Sino Gas the tax
expense for the year is 442,365 USD. This amount is deferred expense for the
year as it is treated as allowable tax expense from deferred income.

There is no tax payable as the
company has suffered loss in the last year which is considered as tax saving
for the company. And reduced the tax amount

The accounting rules which
businesses follow while reporting financial results are usually different. This
difference is due to the rules they follow when preparing their income taxes
and the actual income tax rules. Which results, the amount of tax which a
company figures it should pay based on the profit reported will be different
from actual tax bill. This disparity shows in the company’s financial
statements as a difference between income tax expense and income tax payable
which is termed as deferred tax.

 

Income tax expense is the figure
which company has calculated which company owes in taxes that are based on
standard business accounting rules. The company reports this expense on its
income statement. Income tax payable is actual amount that company owes which
are based on the rules of tax code. Income tax payable appears on the statement
of financial position as a liability until the company actually pays the tax
bill.

Differences in the financial and
the tax accounting are supposed to even out over time. So the reason is
company’s income tax expense which may be higher than its actual tax bill but
also at some point in the future the bill will be higher than tax expense.
Conversely if the tax expense is lower than the actual tax bill this year a
future tax bill will be higher than the expense. When there is a company’s
income tax expense different from actual tax bill then the difference must
appear in balance sheet which can be used later.

 

 

 

7) Facts about
Recording Tax:

 

The Australian tax system the tax
rate for small entities is 28.5 % and for large entities its 30 %. As Sino Gas
is large company the effective tax rate applies is 30 %. This is also shown in
the statement of profit or loss. As the company is facing loss from couple of
years the tax rate is still 30 % but it will be treated as tax relief and which
will be deducted from the future tax on profit.

Recently in case of Sino gas the
company makes a loss of 7,340,734 USD as and the total tax according to
Australian tax system the tax benefit on this system would be after deducting
subsidiary income tax expense and after deducting items on which benefit is not
received the total tax benefit for Sino gas is 1,874,793 USD.

This is used against the future tax
on allowable income as it is treated as deferred income. As shown in the income
statement B2 section of the report the deferred tax expense on for this year is
442,365 USD which is from previous years.

The current year income tax expense
is nil. As this company is facing losses from couple of years which is creating
deferred income and the company is offsetting this amount.

 

x

Hi!
I'm Erica!

Would you like to get a custom essay? How about receiving a customized one?

Check it out