Analyses of Mc. Donald Corporations Financial Statements

Table of Contents

Analyses of Mc. Donald Corporations Financial Statements3

INTRODUCTION3

DISCUSSION3

CONCLUSION9

References10

Analyses of Mc. Donald Corporations Financial Statements

INTRODUCTION

The analyses of the elements of financial reporting are of significant importance. One should have the relevant and in-depth knowledge of the reporting framework as applicable in his or her jurisdiction. This paper discusses the implications produced on the financial statements of the Mc. Donald's corporation of following elements:

Income and deferred taxation

Employee benefits

EPS and dilutive securities

Share based payments

Implications of carry back and forward losses according to the IRS

Presentation of Cash Flow Statement and non-cash transactions.

The analysis of the elements identified above is presented below in further detail.

DISCUSSION

What amount of deferred tax assets or deferred tax liabilities are on the two most recent years on the balance sheet? What gives rise to these deferred taxes? What information is disclosed in the footnotes related to deferred taxes? Please define a deferred tax asset and deferred tax liability.

Net deferred tax liability as disclosed in the Financial Statements of Mc. Donald's Corporation for the year ended December, 2011 and December 2010 is $660.1 and 546.8 respectively. Deferred taxes are a result of the differences in treatment of revenues and expenses. Taxation authorities only recognize elements in calculations of taxable income based on receipt and payments of cash. Accounting income is calculated totally on the basis of accruals. This difference gives rise to temporary differences which will be reconciled in the future, hence resulting in deferred tax liability or asset. Mc. Donald's corporation has expressed in thorough detail the recognition of the deferred taxes. An extract from the financial statement is reproduced hereunder for your reference:

"As of 31, December 2011 and 2010, the company's gross unrecognized tax benefits totaled $565 million and $572 million respectively. After considering deferred tax accounting impact, it is expected that the about $420 million of the total as of December 31, 2011 would favorably affect the effective tax rate if resolved in the company's favor."

Deferred taxation is the resultant of a temporary difference, between the carrying amount of assets or liability and its tax base. When the carrying amount is less for an asset and greater for a liability in relation to its tax base, it gives rise to a deductible temporary difference and hence a deferred tax asset. Further if the carrying amount is greater for an asset and less for a liability in relation to its tax base, it gives rise to taxable temporary difference and hence a deferred tax liability.

What temporary and permanent differences does the company disclose in its footnotes? What are some other examples of temporary and permanent differences?

The break up schedule detailing the types and amount of temporary differences are not disclosed in the financial statements of the company. The information disclosed in the footnotes is reproduced hereunder for your reference:

"Deferred U.S income taxes have not been recorded for temporary differences related to investments in certain foreign subsidiaries and corporate joint ventures. These temporary differences were approximately ...