Essays on Accounting And Society Essay

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IntroductionAustralia mining sector has played an important role in development of the nation. The sector has longstanding stability to political influences and taxation impacts. It is expected that the sector will continue to develop and increase benefits to the nation. To achieve this, government proposed new taxation arrangements by introducing Mineral Resource Rent Tax (MRRT). Mineral Resource Rent Tax is a resource tax which taxes profits from mining operations for selected commodities. These commodities include coal, iron ore and certain derivatives of these commodities. MRRT basically applies to all entities that have mining projects.

The tax will come to effect from 1st July, 2012 and it will always be calculated for each financial year starting from 1st July every year. Positive Accounting Theory is being applied by companies in order to come up the estimates of liability and tax. Positive accounting theory is used by the mining companies as they seek to explain and predict the effects of MRRT their total income and performance of mining business. Positive accounting theory have been used by the government and mining entities to predict and explain the impact of MRRT in the mining industry and how the tax will be used for development of the nation and mining sector (Deegan, 2009).

Liability is calculated by multiplying the mining profit less MRRT allowances using the rate of 30%. An extraction allowance reduces the effective tax rate to 22.5% (Ernst & Young, 2011B). A measure was designed to ensure that small businesses are not burdened and it dictates that a company will have to pay the tax only if its annual profits add up to $75 million.

MRRT was formed to replace the Resource Super Profit Tax (RSPT) which had been announced as the initial response to the Australia’s Future Tax System review that is the Henry Tax review. MRRT is similar to Petroleum Resource Rent Tax in concept but it is different in operations. MRRT was supported by the Prime Minister Julia Gillard who made its implementation her first priority (Ernst & Young, 2011B). This paper will evaluate on the impact of MRRT on the accounting policy of mining companies affected by the tax and how the mining entities apply the Positive Accounting Theory in their financial estimates for purpose of determining the amount of tax they should pay. Impact before implementation of MRRTBefore implementation of MRRT, the affected tax payers have to perform a number of key measures to ensure that they are ready for MRRT.

These measures include; use of PAT to conduct evaluations, modeling to determine and explain impact of the tax on the financial results, examine the impact on financial statements such as profits, cash-flows and balance sheet in order to comply with financial reporting obligations.

Tax payers are also to develop a policy for complying with the requirements of the tax and also be ready to verify default installment rates by October 2012 (Ernst & Young, 2011B). The affected tax payers should evaluate systems and processes for capturing, analyzing data and filling profits. Tax payers are to form a lawful and corporate governance appraisal to guarantee that positions taken are invulnerable and companies are able to fund the payments required under tax payment and funding agreements. All these strategies are necessary for identifying the timeliness in which these proceedings need to be undertaken when the key milestones arise.

This will ensure that the companies are prepared for the MRRT and its impacts on the accounting policy of the company as it can affect financial statements easily (Ernst & Young, 2011A).

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