FACULTY OF BUSINESS, GOVERNMENT & LAW

Group Assignment Coversheet

Country
Student ID number Kananust Pongpanich
& Student Name U3061556
Muhammad Saleh
U3104936
Zhengnan Li
Unit name
Company Accounting

Thailand
Pakistan
China

Unit number

6227

Name of
lecturer/tutor

Simon Hoy

Assignment topic

Tax effect accounting decisions in Coca Cola Amatil

and Metcash

Due date

23 October 2014

You must keep a photocopy or electronic copy of your assignment.

Student declaration
We, certify that the attached assignment is the work of myself and other members of my group.
Material drawn from other sources has been appropriately and fully acknowledged as to
author/creator, source and other bibliographic details. Such referencing may need to meet unit-specific
requirements as to format and style.
Signature of the groups representative: _____________________ Date: ____________
Date of submission_____23 October 2014__________

Contents
EXECUTIVE SUMMARY................................................................................................. 2
LITERATURE REVIEW................................................................................................... 3
COCA-COLA AMATIL LIMITED...................................................................................... 6
Percentage of DTAs to Total Assets and Non Current Assets...................................6
Percentage of DTLs to Total Liabilities and DTAs to DTLs........................................6
METCASH LTD............................................................................................................ 7
Percentage of DTAs to Total Assets and Non Current Assets...................................7
Percentage of DTLs to Total Liabilities and DTAs to DTLs........................................7
FINDINGS.................................................................................................................... 8
Details of Deferred Taxes............................................................................................ 8
COCA-COLA AMATIL LIMITED................................................................................... 8
MET CASH LIMITED................................................................................................. 9
Ratio Analysis........................................................................................................... 10
METCASH LTD........................................................................................................ 10
Debt to Equity Ratio.............................................................................................. 11
Return on Equity.................................................................................................... 11
Net Profit Ratio...................................................................................................... 11
Earnings Per Share................................................................................................ 11
COCA-COLA AMATIL LTD........................................................................................... 12
Debt to Equity Ratio.............................................................................................. 13
Return on Equity.................................................................................................... 13
Net Profit Ratio...................................................................................................... 13
Earnings Per Share................................................................................................ 13
CONCLUSION............................................................................................................ 14
References................................................................................................................ 15

EXECUTIVE SUMMARY
This paper summarizes a comparison between the company performances of Coca-Cola Amatil
Ltd and Metcash Ltd with the help data from their annual reports. Furthermore, the critique
outlined in this document will discuss IAS 12 (AASB 112) and the proposed changes which
relates to the accounting treatment for income tax. In the light of the ratio analysis by using the
data from their Annual Reports for the past three years, the information will illuminate how the
recording of deferred tax assets and deferred tax liabilities becomes unclear for the users for
decision making particularly when there is a significant difference between the size and volume
of the companies. Finally, the implications of our findings with help of ratio analysis will be
discussed within the conclusion.

LITERATURE REVIEW
According to IAS plus (n.d), Accounting standard for income tax has been provided under IAS
12 (AASB112) to give an explanation for the tax consequences of transactions and recognize
profit or loss in any narrated tax effects. Furthermore, under IAS 12, an asset or liability will
ultimately be either recovered or settled, and it may lead to future tax consequences that should
be recognized immediately at the same time when the asset or liability is purchased or incurred.
If the recovery or settlement has no tax consequences, the standard imposes an organization to be
aware of a deferred tax liability (deferred tax asset) and the entity should also record the
consequential tax amount on transactions which is the same way as it records for the transactions
or other events themselves (IAS plus n.d). Australian Accounting Standard Board (2014)
mentions that the proposed amendment of IAS 12 simplifies the accounting when an
organization informs tax losses, for deferred tax assets related to debt instrument considered at
fair value. The debt instrument which is measured at fair value and its tax base remains at cost,
will increase a deductible temporary different if there is a decrease in the carrying amount of that
debt instrument has been occurred. Moreover, the entitys future taxable profit will be estimated
from recovering assets, exclude tax deductions from the repudiation of deductable temporary
differences. In addition, the tax effect of the deductable tax difference can be recognized as a
deferred tax asset with other deferred tax assets however the entity can subtract tax losses against
income with specific deferred tax assets if the lawsuit is limited (Australia Accounting Standard
Board 2014).
As Stephens (2005) defines that deferred taxes are really important to understand the financial
position because they give us a clear picture of the equity position and accrual earnings of the
company. There are always good situations and bad situations in the company cycle and they can
moderate the earnings by increasing or decreasing the tax liability in that cycle. At the end of a
financial year, the closing balance of a particular financial period becomes the opening balance
of the other; creates a tax reversal effect and bolsters the financial operations of the company
(Stephens 2005). The Australia Accounting Standard Board (2013) states that deferred tax asset
and deferred tax liability can be prescribed into 2 objectives as following; deferred tax asset
performs as prepaid structure that will be reduced the amount of future taxes if taxable income is
larger than reported income, while, deferred tax liability will be indicated to the future tax that
4

firm has to pay. Rouillard (2013) describes that examples of deferred tax asset can be included
provisions, annual leave, product warranty reserves and examples of deferred tax liability include
accelerated depreciation payments and non-deductable intangibles (Rouillard 2013). As Stephens
(2005) says, the deferred tax liability will be recognized for all taxable temporary differences,
except deferred tax liability occurs from good will, not a transaction of business combination,
investments in subsidiaries and interests in joint ventures. Likewise, deferred tax asset, will not
be identified if it is not a transaction of business combination and do not affect both accounting
profit and taxable profit, investments in subsidiaries and interests in joint ventures which is the
temporary difference will not overturn in predictable future (Stephens 2005). These restrictions
may be misleading the users toward the understanding of deferred tax asset/liability recognition.
Apart from that, the process to disclose an annual report to display deferred tax asset/liability
may be confused the investors, thus, both deferred tax asset/liability can be described under the
IAS 12.80 and IAS 12.81 and some disclosures are related to IAS 1 as well (CPA Australia 2010)
.
This papeer demonstrates a comparison of the accounting for income tax between two
companies, Metcash and Coca-Cola Amatil that has been shown in the financial statements from
2011-2013. The annual report of Coca-Cola Amatil 2011-2013, has recorded their financial
statement by according to the AASB rules and the Corporation Act 2001, except IAS 12
(AASB112) as they do not mention in the reports. Whether, Coca Cola do not include the IAS 12
(AASB 112) in their accounting policies but they have provided adequate information to the
investors in term of their profit or loss related to tax effects, also, present deferred tax
asset/liability as movements of their financial over the year which can be recognized the asset or
liability when it occurred. Whereas, Metcash annual reports 2011-2013 has been stated about the
tax effect accounting base on the AASB 112 (IAS 12) under the tax effect accounting however
they provide insufficient information in the financial statement relate to deferred tax
asset/liability which effect the accounting in the organization that should be given and indicates
under IAS 12. Furthermore, the comparison of the policies use according to Australian
Accounting Standard Base Rules between Metcash and Coca Cola can be classified that Metcash
has been provided their financial report by follow more AASB rules than Coca Cola because the
diversity of the market. Coca Colas product mostly involve in a beverage market which may not
cause the complexity in the business thus the information relate to the financial account has been
5

granted and adopted with reasonable and easy to understand. On the other hand, Metcash has a
diversity market composition far more than Coca Cola hence this may be lead to the complicated
financial structure.

COCA-COLA AMATIL LIMITED

Percentage of DTAs to Total Assets and Non Current Assets

2013

Total DTAs

86.4

Total Non-Current Assets

3,450.10

Percentage of DTAs to Total Non-Current Assets

Total Assets

2.50%
6,608.40

Percentage of DTAs to Total Assets

1.31%

2012
100.2

2011
84

3,777.60 3,384.70
2.65%

2.48%

6,708.70 6,029.00
1.49%

1.39%

Percentage of DTLs to Total Liabilities and DTAs to

DTLs
Total DTLs
Total Non-Current Liabilities
Percentage of DTLs to Total Non-Current Liabilities
Total Liabilities

259.5
2,755.80
9.42%
4,868.60

252

237.8

2,896.00 2,606.30
8.70%

9.12%

4,645.20 3,994.70

Percentage of DTLs to Total Liabilities

5.33%

5.42%

5.95%

Percentage of DTAs to DTLs

33.29%

39.76%

35.32%

METCASH LTD
Percentage of DTAs to Total Assets and Non Current Assets

Total DTAs
Total Non-Current Assets
Percentage of DTAs to Total Non-Current Assets
Total Assets
Percentage of DTAs to Total assets

2013

2012

2011

129.9

146.6

55.9

2,238.00

2,015.70

1,668.20

5.80%

7.27%

3.35%

4,133.30

4,027.60

3,799.90

3.14%

3.64%

1.47%

Percentage of DTLs to Total Liabilities and DTAs to DTLs

Total DTLs

68.1

51.1

49.3

Total Non-Current Liabilities

957.90

1,131.10

882.70

Percentage of DTLs to Total Non-Current Liabilities

7.11%

4.52%

5.59%

2,509.10

2,692.50

2,357.10

2.71%

1.90%

2.09%

Total Liabilities
Percentage of DTLs to Total Liabilities
Percentage of DTAs to DTLs

190.75%

286.89% 113.39%

From the above calculation, it is evident that the percentage of deferred tax assets to non- current
assets of Coca-Cola Amatil Ltd is 2.45%, 2.65% and 2.48% in year 2013, 2012 and 2011. The
proportion of deferred tax assets to total assets is 1.31%, 1.49% and 1.39% in 2013, 2012 and
2011. The percentage of deferred tax assets to non- current assets of Met Cash is 5.8% in year
2013, 7.27% in 2012 and 3.35% in 2011. The percentage of deferred tax assets to total assets is
3.14%, 3.64% and 1.47% in year 2013, 2012 and 2011.
It is noticeable that Met Cash has a larger proportion of deferred tax to non-current assets and
total assets in all three years. However, we took deferred tax liabilities into account to determine
whether this indicates a better DTAs of Met Cash. The proportion of deferred tax liabilities to
non- current liabilities of Coca-Cola Amatil Ltd is 9.42%, 8.7% and 9.12% in year 2013, 2012
and 2011. The proportion of deferred tax assets to total assets is 5.33%, 5.42% and 5.95% in
2013, 2012 and 2011. The percentage of deferred tax liabilities to non- current liabilities of Met
8

Cash is 7.11% in year 2013, 4.52% in 2012 and 5.59% in 2011. The percentage of deferred tax
liabilities to total liabilities is 2.71%, 1.9% and 2.09% in year 2013, 2012 and 2011.

FINDINGS
Met Cash shows a lower percentage of deferred tax liabilities than Coca-Cola Amatil Ltd both to
non- current liabilities and to total liabilities. Furthermore, Met cash holds a higher proportion of
DTAs to DTLs (190.7%, 286.89% and 113.39% in 2013, 2012 and 2011) than Coca-Cola Amatil
Ltd (33.29%, 39.76% and 35.32%) in all three years.
We have strong evidence to conclude that from all the calculations above, Metcash has a very
strong financial position. We can see Met Cash holds Net deferred tax assets 61.8, 95.5 and 6.6
Million in 2013, 2012 and 2011 respectively. On the other hand, Coca Cola Amatil Ltd has
deferred tax liabilities 173.1 Million in year 2013, 151.8 Million in 2012 and 153.5 Million for
2011.

Details of Deferred Taxes

COCA-COLA AMATIL LIMITED
2013($M
)

2012($M
)

2011($M)

Allowances for current assets

(14.8)

(13.5)

(15.5)

Accrued charges and employee expense

obligations

(35.9)

(45.7)

(48.5)

Other deductible items

(35.7)

(41.0)

(20.0)

Total DTAs

(86.4)

(100.2)

(84.0)

Investments in bottlers agreements

129.9

130.1

130.7

Property, plant and equipment and intangible

assets

78.4

70.4

72.6

Retained earnings balances of overseas

subsidiaries

11.5

16.0

21.4

Other taxable items

39.7

35.5

13.1

Total DTLs

259.5

252.0

237.8

Net Deferred Tax Liabilities

173.1

151.8

153.8

Deferred Taxes

10

MET CASH LIMITED

Deferred Tax Liabilities

2013($M) 2012($M) 2011($M)

Intangibles

66.8

47.2

45.4

Accelerated depreciation for tax purposes

1.3

2.3

3.2

1.6

0.7

(68.1)

(51.1)

(49.3)

115.6

133.2

53.1

Other

0.7

1.2

0.4

Unutilized tax losses

13.6

12.2

2.4

Total

129.9

146.6

55.9

Set off from deferred tax liabilities

(68.1)

(51.1)

(49.3)

61.8

95.5

6.6

Other
Set off against deferred tax assets
Deferred Tax Assets
Provisions

Deferred Tax Assets

Net

We can see Met Cash holds net deferred tax assets of 61.8, 95.5 and 6.6 Million in 2013, 2012
and 2011 respectively. On the other hand, Coca Cola Amatil Ltd has deferred tax liabilities 173.1
Million in year 2013, 151.8 Million in 2012 and 153.5 Million for 2011.
Coca Cola Amatil Ltd discloses deferred tax specifically in an independent section, all
components required by AASB 112 can be seen from its annual report. While Met Cash
interprets deferred tax in the section of income tax, and not show all stories of deferred tax, for
instance, details of (Charged)/credited to the income statement as deferred tax
(expense)/benefit

11

Ratio Analysis

METCASH LTD

2013

2012

2011

Income tax expense

71.20

109.50

88.50

Deferred tax expense/(income)

48.80

(37.00)

20.60

Adjustment for previous year

(3.90)

(0.70)

(3.00)

Total Tax Expense for the year

116.10

71.80

106.10

Profit for the year attributable to Parent

206.00

90.00

241.40

Profit for the year attributable to Noncontrolling interest

3.10

8.20

9.40

Other Comprehensive Income

3.00

(3.50)

(0.20)

Total Comprehensive Income for the year after

Deferred Tax impact

212.10

94.70

250.60

Deferred Tax expense/(income)

48.80

(37.00)

20.60

Total Comprehensive Income before deferred

tax impact

260.90

57.70

271.20

Long Term Debts interest bearing

751.40

974.00

826.70

1,624.20

1335.1

1,442.80

48.80

(37.00)

20.60

1,673.00

1,298.10

1,463.40

Equity including NCI after Deferred Tax

Impact
Deferred Tax Impact
Equity including NCI before Deferred Tax
Impact

12

Debt to Equity Ratio

Debt To Equity after Deferred Tax impact

Debt To Equity before Deferred Tax impact

Profit for the year after Deferred Tax impact

Deferred tax expense/(income)
Profit for the year before Deferred Tax impact

751.4 : 1624.2

974 : 1335.1

826.70 : 1442.80

0.463 : 1

0.730 : 1

0.573 : 1

751.4 : 1673

974 : 1298.1

826.70 : 1463.40

0.449 : 1

0.75 : 1

0.565 : 1

209.10
48.80
257.90

98.20
(37.00)
61.20

250.80
20.60
271.40

209.1/1624.2*100

98.2/1335.1*100

250.8/1442.8*100

12.87%

7.36%

17.38%

257.9/1673*100

61.2/1298.1

271.4/1463.4*100

12.50%

4.71%

18.55%

209.1 / 13095 * 100

98.2 / 12612.3 *100

250.8 / 12461.6
*100

1.60%

0.78%

2.01%

257.90 / 13095 * 100

61.2 / 12612.3 *100

271.4 / 12461.6
*100

1.97%

0.49%

2.18%

Return on Equity
Return on Equity after Deferred Tax impact

Return on Equity before Deferred Tax impact

Net Profit Ratio

NP Ratio = NP after Tax / Sales Revenue * 100
NP Ratio after Deferred Tax Impact

NP Ratio before Deferred Tax Impact

Earnings Per Share

Earnings Per Share = Profit for the year / No. of Shares Outstanding
Number of Shares Outstanding

880.70

771.35

768.85

EPS after Deferred Tax Impact

209.10 / 880.70

98.20 / 771.35

250.80 / 768.85

Cents 0.24

0.13

0.33

257.90 / 880.70

61.2 / 771.35

271.40 / 768.85

Cents 0.29

0.08

0.35

EPS after Deferred Tax Impact

13

14

COCA-COLA AMATIL LTD

2013

2012

2011

243.10

646.10

742.70

Income Tax including Deferred Tax

(162.50)

(188.10)

(150.90)

Profit after Tax after deferred tax

impact

80.60

458.00

591.80

Deferred tax (benefit) / expense

(1.60)

2.90

(71.50)

Profit after tax before deferred tax

impact

79.00

460.90

520.30

Long Term Debts interest bearing

2,377.40

2,435.80

2,201.70

Equity after Deferred Tax Impact

1,739.80

2,063.50

2,034.30

(1.60)

2.90

(71.50)

1,738.20

2,066.40

1,962.80

Profit before Income Tax

Deferred tax impact

Equity before Deferred Tax Impact

15

Debt to Equity Ratio

Debt To Equity after Deferred Tax
impact

2377.40 :
1739.8
1.366 : 1

2435.80 :
2063.5
1.180 : 1

2201.70 :
2034.30
1.082 : 1

Debt To Equity before Deferred Tax

impact

2377.40 :
1738.20
1.368 : 1

2435.8 :
2066.40
1.179 : 1

2201.70 :
1962.80
1.122 : 1

80.60
(1.60)

458.00
2.90

591.80
(71.50)

79.00

460.90

520.30

Return on Equity after Deferred Tax

impact

80.60 / 1739.80
* 100
4.63%

458.00 / 2063.5 *
100
22.20%

591.80 / 2034.3
* 100
29.09%

Return on Equity before Deferred Tax

impact

79.00/1738.20*
100
4.54%

460.90/2066.40*
100
22.30%

520.30 / 1962.8
* 100
26.51%

80.60 / 5036.4 *
100
1.60%
79.0 / 5036.4 *
100
1.57%

458.0 / 5097.4 *
100
8.98%
460.9.0 / 5097.4
* 100
9.04%

591.80 / 4801.2
* 100
12.33%
520.3 / 4801.2 *
100
10.84%

763.59

762.133

759.568

Profit for the year after Deferred Tax

impact
Deferred tax expense/(income)
Profit for the year before Deferred Tax
impact

Return on Equity

Net Profit Ratio

NP Ratio = NP after Tax / Sales
Revenue * 100

NP Ratio after Deferred Tax Impact

Return on Equity before Deferred Tax
impact

Earnings Per Share

Earnings Per Share = Profit for
the year / No. of Shares
Outstanding
Number of Shares Outstanding

16

EPS before Deferred Tax Impact

80.60 / 763.59
0.106

458.00 / 762.133
0.601

591.8 / 759.568
0.779

EPS after Deferred Tax Impact

79.00 / 763.59
0.103

460.90 / 762.133
0.605

520.30 /
759.568
0.685

CONCLUSION
From above discussion and calculation of the ratios, it is clear that in case DTA arises, it
increases after tax income and if DTL arises it reduces income after tax. However, the spirit of
incorporating deferred tax asset or deferred tax liability is that the tax effect should be included
in the year to which it relates or pertains as per Matching Concept stipulated in the International
Accounting Standards so that financial statements should reflect the true and fair picture. Had the
deferred tax impact i.e. DTA or Deferred Tax DTL is not incorporated could materially affect the
financial ratios as computed above whereby the users can be disguised and their financial
decisions can also be affected.
From the ratio analysis, it is evident that the return on investment will reduce when a company
has more DTAs and it doesnt reflect the true picture of the financial position of the company
with respect to real cash flow because of the higher value of the assets. In our case, considering
the effect of DTA, Coca-Cola Amatil Ltd has a very little effect on the Debt to Equity, Return on
Equity, Net Profit, and Earnings per Share. However, Metcash Ltd has a significant effect. Big
companies have more employees and keeping that view, under IAS19, they need to design more
post-employment benefit plans and they make provisions for it.
There are always good days and bad days in the company cycle and they can moderate the
earnings by increasing or decreasing the tax liability to bolsters the financial operations of the
company in that cycle. However, in the light of ratio analysis, the amount of DTA & DTL may
create a significant difference; i.e. a nominal amount of DTA & DTL does not affect any relevant
ratios because it does not materially affect the Profit After Tax. However, if there is significant
amount involved for DTA or DTL then it materially affect the relevant ratios because it
materially affects the After Tax Profit.

17

References
Australia Accounting Standard Board. (2013). Income taxes:2013. Retrieved from
http://www.aasb.gov.au/admin/file/content105/c9/AASB112_07-04_COMPoct10_01-11.pdf
Australia Accounting Standard Board. (2014). About the AASB (2014). Retrieved from
http://www.aasb.gov.au/About-the-AASB/For-students.aspx
Australia Accounting Standard Board. (2014). Recognition of Deferred Tax Assets for
Unrealised Losses (2014). Retrieved from
http://www.aasb.gov.au/admin/file/content105/c9/ACCED253_08-14.pdf
Coca Cola Amatil, 2013, Annual Report, Sydney, viewed 13 October 2014, file:///G:/pro.
%20acct.%20ext/semester%202,%202014/Assignments/company%20accounting/Coca%20Cola
%20Amatil/Annual%20Report_A4%202013.pdf
Coca Cola Amatil, 2012, Annual Report, Sydney, viewed 13 October 2014, file:///G:/pro.
%20acct.%20ext/semester%202,%202014/Assignments/company%20accounting/Coca%20Cola
%20Amatil/Annual%20Report%20-%202012.pdf
Coca Cola Amatil, 2013, Annual Report, Sydney, viewed 13 October 2014, file:///G:/pro.
%20acct.%20ext/semester%202,%202014/Assignments/company%20accounting/Coca%20Cola
%20Amatil/Annual%20Report%20-%202011.pdf
Delottie, n.d., IAS 12-Income taxes, viewed 14 Oct 2014,
http://www.iasplus.com/en/standards/ias/ias12

18

Metcash, 2011, Annual Report, Sydney, viewed 13 October, file:///G:/pro.%20acct.

%20ext/semester%202,%202014/Assignments/company
%20accounting/Metcash/AnnualReport2011.pdf
Metcash, 2012, Annual Report, Sydney, viewed 13 October, file:///G:/pro.%20acct.
%20ext/semester%202,%202014/Assignments/company
%20accounting/Metcash/AnnualReport2012.pdf
Metcash, 2013, Annual Report, Sydney, viewed 13 October,
file:///G:/pro.%20acct.%20ext/semester%202,%202014/Assignments/company
%20accounting/Metcash/AnnualReport2013.pdf

Rouillard, A 2013,
Deferred Tax Assets and Liabilities Invested Capital Adjustment, New Constructs blog, web
blog post, 2 August, viewed 15 October 2014,
http://blog.newconstructs.com/2013/08/02/deferred-tax-assets-and-liabilities/
Stephens, M, 2005, Tax Effect Accounting Toolkit, Thompson, viewed 15 October 2014,
http://www.thomsonreuters.com.au/media/guides/cpd/teat_ug.pdf

19