Financial Accounting

Part A

In the past, “the tax payable method” was used when dealt with income tax in Australia. That means the amount of tax paid using tax base equals the accounting base.

The tax effect method is different. Current tax consequences and future tax consequences arises in accounting for income tax. The tax base uses the cash base to calculate taxable income, so when accrued income or prepaid expenses occurred or other non deductable items required by this method and so on, there will be difference consequences compared with accounting method. Hence, deferred tax liabilities and assets arise due to these reasons.

The tax effect method is not complied with IFRS (International Financial Reporting Standards). The IFRS uses the accrued bases. Under this standard, revenues and expenses are recognized under an accrued base, not when the cash is paid or received.

Part B

Profits and losses which are related to transactions of the group can affect the consolidated equity, as a result, the NCI is entitled the subsidiary adjusted for the effects of profits and losses made on intra group transactions. The existence of intra group transactions should be regarded as an important part during the calculation of the NCI.

The NCI is considered to be within equity, it is a separate component from the parent shareholders’ equity. In other words, compared with a liability of a company, NCI is considered more of a part of the equity towards the company. The reasons for that are because according to the Framework, the NCI does not fit the criteria of the liability. Because of the fact that the NCI accepts some shares of consolidated equity and the NCI does not own an obligation of economic outflows from the group, hence, in the residual equity of the group, the NCI is a part of the residual equity.