Contingent Capital With Option To Convert -Myassignmenthelp.Com

Question: Discuss About The Contingent Capital With Option To Convert? Answer: Introduction The preparation and presentation of the financial report of companies is known as corporate accounting. The financial reports are made up of various statements such as directors report, statement of profit and loss account, balance sheet and cash flow statements. These reports reflect the financial performance of the company and also describes the financial objectives of the company (Crawford et al. 2012). The preparation of the financial reports also follow certain rules, principles and also certain standards. Overview of the Company Sirtex Medical Limited is an Australian company which is engaged in providing medical treatment to the society. The company specializes in radioactive treatment for inoperable liver cancer. The company was established in 1997 with its headquarter situated in Australia and the company mostly operates in Australia (Sirtex.com, 2018). The company also provides other kind of treatments of other types of cancer. Equities of Sirtex Medical Limited The different types of stocks which are present in the financial report of Sirtex Medical Limited are given below in details: Issued Capital: This refers to the number of shares issued by the company for collecting funds from the public which is also know as share capital (Bolton and Samama 2012.). The issued portion of this total shares is known as issued capital. The issued capital of Sirtex Medical Limited is about $32684000 in 2016 which is more than the previous year figure of issued capital of $27021000 (Sirtex.com, 2018). This increase in the issued capital of the company is because the company has made a fresh issue of shares in 2016. In 2015 the number of shares issued to the public was 56,530,231 and this increased to 57273893 in 2016 which shows that the company has issued new shares during the year. Reserves: This refers to the part of profit which the company keeps for a certain purpose which may be anything. There are specific reserves which has to be utilized for the purpose it was created and there is free reserves which the company can do anything withy this type of reserve (Avery and Kwast 2017). The balance sheet shows a reserve of $6656000 in 2016 which is much more than what was in 2015 that is $5615000. As per the notes to accounts the reserve figure is made up of share right reserve and foreign currency translation reserve. Retained Earnings: This is also a part of the profit which is kept in the business for either reinvestment or distribution among shareholders as dividends purposes. The retained earning has also increased from previous year which is showing $154164000 in 2016. Income Tax Expenditure of Sirtex Medical Ltd The income tax expenses for the year 2016 is shown at $16416000 which is more than the previous year tax expense figure which was $12423000 in 2015 (Sirtex.com, 2018). All the rules and regulations of tax laws prevailing in Australia are followed by the company. The components of the income tax expenses as shown in the notes of accounts are current tax which is to be paid, deferred tax and provisions which are related to previous years (Lee 2017). The reason for the increased level of increase income tax is that the current tax expenses of 2016 is $14671000 which is more than previous years tax figure of $8587000 in 2015 (Sirtex.com, 2018). However the deferred tax has reduced from the previous years figure. The provisions of 2015 show a positive figure whereas the provision of 2016 show a negative figure. Income Tax Rate and Structure The change in current income tax is due to the profit which the company has earned or adjusted from the net profit before tax. The tax which is followed by the company is either enacted from earlier or recently enacted till the reporting date. The weighted average tax rate which is shown by the company in the notes to account state the rate is 23.5%. Deferred tax is calculated from the balance sheet using the liability method. The deferred tax is to charged at the rate when the ssets or liabilities are realized. The company and its subsidiaries have formed an income tax consolidation group. The company also have foreign currency translation of tax balance. The company charges taxes at the corporate tax rate at the rate of 30%. The companys income tax is calculated on the basis of the corporate tax rate which is charged on the net income of the company after the various adjustments are made from the income. The figures which are adjusted with the income tax of the company are non detu ctible amortization and expenses and income, lower rate of tax rates in the overseas market, effect of foreign currency translation of tax balance, recognition of previous tax losses which was not recognized by the company earlier and effects of tax consolidation groups are also to be removed from the gross tax figure in order to get the net tax figure which is attributable to the company for the current year 2016. Deferred tax assets and liabilities of Sirtex Medical ltd The company has a deferred tax asset which is shown at $7795000 in 2016 and the same figure is shown at lesser amount in 2015 which is $5085000. The company also has a deferred tax liability of $24722000 in 2016 which is comparatively less than the figure of deferred tax liability which is shown in 2015 which is $20034000 (Sirtex.com, 2018). The deferred tax asset item includes tax losses, timing differences relating to fixed assets, employee provisions, unrealized foreign exchange losses and also some other components as well. The deferred tax liabilities consists of components such as timing differences which are related to capitalization of development expenditure, fixed assets and other components as well. These deferred tax assets and deferred tax liabilities are recorded in order to identify such components which makers up the deferred tax assets and liabilities. The users of the financial statements would be able to understand the different components of taxes which the compan y is required to pay and represent in the financial report. Tax assets and Tax Liabilities The company does have any current tax assets as the financial reports of the company shows none in both the years that is 2015 and 2016. However the company has a current tax liability which is shown at $7239000 in 2016 and the same is shown at $4746000 in 2015. The figure of income tax expense as shown in the statement of profit and loss account shows $16416000 and the current tax asset figure for the current year show a figure of $7239000. The figure of current tax liability may contain outstanding tax which the company needs to pay to the government. It comes in the liability side of the balance sheet whereas the income tax expense only relates to the current year expenses which the company must pay in full. Any outstanding part will then come under the current tax liability of the company. Difference in Income tax paid The income tax which the company needs to pay is shown in the statement of profit and loss account which is $16416000. The company has paid off $8134000 in the current year. the difference which occurs between the income tax expense and income tax actually paid may be due to the difference in payment criteria of the company. the company as per the income tax liability has paid off almost half of the liability. This shows that the company may be following half yearly payment systems which requires income tax payments to be made in two half or installments (Reynolds and Smolensky 2013). For the meantime the amount of income tax expenses which is not paid by the company will be treated as a current tax liability until the tax expenses liability is not cleared. Understanding the tax structure As per the analysis of the financial reports of Sirtex Medical ltd, the company follows corporate tax rate of 30% and has an effective weighted average tax rate of 23.5%. The company has an income tax expense of about $16416000 out of which half of the tax is paid by the company in the current year 2016 and the rest will be paid in a half year time which has been assumed. The company has a current tax liability but has no current tax assets. The company has both deferred tax assets and liabilities which is shown in the balance sheet which reflect certain timing differences in the tax treatments. The company has clearly reported all aspects in the balance sheet which could be of any use to the users. Conclusion The company Sirtex Medical ltd as per the above analysis has clearly mentioned and pointed out all the aspects of tax which the company has recorded in the financial statement. The balance sheet shows that the company tax expenditure is made up of current tax liability of the company as well as the deferred tax which the company can either use to set off or set on. Reference Avery, R. and Kwast, M., 2017. Money and Interest Rates under a Reserves Operating Target.Evolution,5, p.17. Bolton, P. and Samama, F., 2012. Capital access bonds: contingent capital with an option to convert.Economic Policy,27(70), pp.275-317. Crawford, L., Crawford, L., Extance, H., Helliar, C. and Power, D., 2012. Operating segments: The usefulness of IFRS 8. ICAS. Lee, D., 2017. Impact of the Medical Device Tax on Firm RD and Performance: Evidence from the Affordable Care Act. Reynolds, M. and Smolensky, E., 2013.Public expenditures, taxes, and the distribution of income: The United States, 1950, 1961, 1970. Academic Press. Sirtex.com. (2018).Sirtex - US. [online] Available at: https://www.sirtex.com [Accessed 24 Jan. 2018].