Introduction

ANNUAL REPORT

Question 1
Accounting concepts are the basic assumptions and rules and principles which work as the basis of recording business transactions and preparing accounts, these concepts constitute the very basis of accounting and have been developed over the years from experience and thus they are universally accepted rules. The following are the accounting concepts mentioned in the paper details and their relevant examples from the cab charges annual report;

• The first accounting concept is when revenue is allocated based on time rather than receipt which is recognized when revenue is earned, and the expenses are consumed. A business may recognize revenue, profits, and losses in amounts varying from what would be recognized based on the cash received from customers. Auditors will only certify the financial statements of a business that have been prepared under the accruals concept. Cabcharge follows this concept by; enhancing its resources and capability across more of the taxi industry. Strengthen bureau and other product offerings to external taxi network Strengthen relationship with network merchants. Enhance products and introduce new products. Refocus on hire car terminals.

• The second accounting concept is under the tax effect of accounting. All the transactions are recorded in the books of accounts on the assumption that profits on these transactions are to be ascertained for a specified period. This is known as the accounting period concept. Thus, this concept requires that a balance sheet and profit and loss account should be prepared at regular intervals. This is necessary for different purposes like calculation of profit, ascertaining financial position, and tax computation for example in Cabcharge, performance in the taxi networks business has witnessed a growth in revenue by 2.6% to $99.1 million as they achieved record growth in the number of taxis choosing to affiliate with their taxi networks. Total taxi fares processed through our payments system increased 8.6% to $1,118 million However, growth in taxi fares resulted in an overall 15.3% decrease in taxi service fee income to $75.9 million. They controlled expenses effectively, with cash operating expenses down 1.4% – a good result was seen they continue to generate more cash flow from operations of $50 million in FY15 and reduced net debt by $12.9 million resulting in a conservatively geared balance sheet with a net debt to equity ratio of 26.6% at 30 June 2015. Their focus on capital management is aimed at striking the right balance between gearing the company for growth within conservative balance sheet parameters while ensuring shareholders continue to receive appropriate dividends.

• The last accounting concept is bringing to account the expected obligations before they arise, which means that revenue is only recognized when there is a reasonable certainty that it will be realized, whereas expenses are recognized sooner when there is a reasonable possibility that they will be incurred. it tends to result in more conservative financial statements. Conservatism also states that transactions should be recorded a failure to do so might alter the decisions made by a reader of a company’s financial statements. This tends to result in relatively small-size transactions being recorded so that the financial statements comprehensively represent the financial results, financial position, and cash flows of a business for example in-cab charge this concept is seen where they Increase fleet size Increase share of network affiliation market, Strengthen ability to deliver services to passengers and drivers. , using the technologies that hasten the process that link booking and payment, enhance revenue opportunities

Question 2
AASB(Australian Accounting Standards Board) describes the objectives of and the concepts for, general purpose financial reporting(Dowlig, Godfrey 2001), it assists the AASB to develop standards-based on consistent concepts, prepares to develop when no standard applies to a particular transaction, and parties to understand and interpret the standards

The problems of the tax effect accounting include; items appearing in the financials as left-overs from the processing of the transactions data which arise by the accrual system being based upon revenues being allocated based on time rather than a receipt, for example, in-cab charge The net effect of growth in taxi fares processed and the decline in the effective service fee rate to 6.8% due to the implementation of laws that limit service fees on taxi payments resulted in a 15.3% decrease in taxi service fee income to $75.9 million Deferred tax liability overstates profits, increases the rates of return incorporates the cap gearing decreases net asset backing and decreases the implied solvency, secondly, there is the injection of pure fiction such as deferred tax liabilities caused by the tax effect system of accounting for example in Cabcharge, The higher discount rate reflects an increase in the expected market premium for UK equities over the risk-free rate. The pre-tax discount rate used on 30 June 2015 was 9.1% (2014: 7.3%). The carrying value of the associate interest in CFN after the impairment charge is $47 million, representing $12 million of surplus cash held by CFN and an enterprise value of $35 million. Accrued payable understates profits, decreases rates of returns on equity and assets increases capital gearing decreases net asset backing and decreases the implied solvency position
Lastly, the imputation of ‘provisions’ for obligations that might accrue which results from bringing to account expected obligations before they arise for example in Cabcharge, their technical competence in payments and deep understanding and engagement with the needs of the taxi industry and its customers enables them to continue operating profitably into the future, and in doing they generate cash flow to invest in product development, ensure prudent capital management and return dividends to their shareholders. In some situations, the separate impacts offset each other to a greater or lesser extent. Raising the deferred tax asset for example shows that the actual income tax payable is less than what is charged. (Clarke and Dean, 2007)

Question 3
Tax effect accounting is the procedure to adjust the difference between profits in business accounting and tax,(Huynh, Laan 2012) this enables the company to reasonably match profits before deducting corporate and other taxes.
For example, the Cabcharge taxi company has reviewed its revenue recognition policy. following lodgement of the preliminary final report with the ASX. A correction has been made to apply a very strict revenue definition where Cabcharge has been removed from the revenue list. This change does not affect profit, cash flows nor the Balance Sheet of Cabcharge. In the current year, the impact of the change has been to reduce revenues by $753m and reduced expenses by the same amount.
Financial report preparers must involve tax colleagues or tax experts, the following is a tax accounting process;
• Consider how management plans to realize assets and settle liabilities
• Work with tax experts to ensure all tax issues are understood
• Ensure the correct accounting foundation is set before starting an account setup
• Calculate temporary differences to avoid recalculating them at the end
• Watch out for amounts booked through reserves
• Tax accounting should follow the accounting treatment

This assignment is attached with Cabcharge 2015 Annual Report from the Australian Security Exchange.

References

Dowling, C., & Godfrey, P. J. (2001). AASB 1037 sows the seeds of change: a survey of SGARA measurement methods. Australian Accounting Review, 11(23), 45-51.
Dean, G. W., & Clarke, F. L. (2003). An evolving conceptual framework?. Abacus, 39(3), 279-297.
Huynh, T., Christodoulou, D., & van der Laan, S. (2012). Legally‐Recognised Group Structures: An Exploratory Analysis. Australian Accounting Review, 22(2), 155-176.