The document provides an overview of the content and format of the income statement, including:
- The uses and limitations of an income statement in evaluating past performance and predicting future performance.
- The key components of an income statement including revenues, expenses, gains, losses, income from operations, and net income.
- How to report various income items such as unusual gains and losses, discontinued operations, and accounting changes.
- The learning objectives cover the income statement, related equity statements, and reporting accounting changes and errors.
Statement of Financial Position and Statement of Cash Flowsreskino1
Statement of Financial Position and Statement of Cash Flows
After studying this chapter, you should be able to:
Explain the uses, limitations, and content of the statement of financial position.
Prepare a classified statement of financial position.
Explain the purpose, content, and preparation of the statement of cash flows.
Describe additional types of information provided.
Describe depreciation concepts and methods of depreciation.
Identify other depreciation issues.
Explain the accounting issues related to asset impairment.
Discuss the accounting procedures for depletion of mineral resources.
Apply the accounting for revaluations.
Demonstrate how to report and analyze property, plant, equipment, and mineral resources.
Statement of Financial Position and Statement of Cash Flowsreskino1
Statement of Financial Position and Statement of Cash Flows
After studying this chapter, you should be able to:
Explain the uses, limitations, and content of the statement of financial position.
Prepare a classified statement of financial position.
Explain the purpose, content, and preparation of the statement of cash flows.
Describe additional types of information provided.
Describe depreciation concepts and methods of depreciation.
Identify other depreciation issues.
Explain the accounting issues related to asset impairment.
Discuss the accounting procedures for depletion of mineral resources.
Apply the accounting for revaluations.
Demonstrate how to report and analyze property, plant, equipment, and mineral resources.
Intermediate Accounting Chapter 1 about Financial Reporting
and Accounting Standards
After studying this chapter, you should be able to:
Describe the growing importance of global financial markets and its relation to financial reporting.
Explain the objective of financial reporting.
Identify the major policy-setting bodies and their role in the standard-setting process.
Discuss the challenges facing financial reporting.
Acquisition and Disposition of Property, Plant, and Equipmentreskino1
Identify property, plant, and equipment and its related costs.
Discuss the accounting problems associated with interest capitalization.
Explain accounting issues related to acquiring and valuing plant assets.
Describe the accounting treatment for costs subsequent to acquisition.
Describe the accounting treatment for the disposal of property, plant, and equipment.
Accounting for Pensions and Postretirement Benefitsreskino1
After studying this chapter, you should be able to:
Discuss the fundamentals of pension plan accounting.
Use a worksheet for employer’s pension plan entries.
Explain the accounting for past service costs.
Explain the accounting for remeasurements.
Describe the requirements for reporting pension plans in financial statements.
Explain the accounting for other postretirement benefits.
Valuation of Inventories: A Cost-Basis Approachreskino1
Describe inventory classifications and different inventory systems.
Identify the goods and costs included in inventory.
Compare the cost flow assumptions used to account for inventories.
Determine the effects of inventory errors on the financial statements.
Intermediate Accounting Chapter 1 about Financial Reporting
and Accounting Standards
After studying this chapter, you should be able to:
Describe the growing importance of global financial markets and its relation to financial reporting.
Explain the objective of financial reporting.
Identify the major policy-setting bodies and their role in the standard-setting process.
Discuss the challenges facing financial reporting.
Acquisition and Disposition of Property, Plant, and Equipmentreskino1
Identify property, plant, and equipment and its related costs.
Discuss the accounting problems associated with interest capitalization.
Explain accounting issues related to acquiring and valuing plant assets.
Describe the accounting treatment for costs subsequent to acquisition.
Describe the accounting treatment for the disposal of property, plant, and equipment.
Accounting for Pensions and Postretirement Benefitsreskino1
After studying this chapter, you should be able to:
Discuss the fundamentals of pension plan accounting.
Use a worksheet for employer’s pension plan entries.
Explain the accounting for past service costs.
Explain the accounting for remeasurements.
Describe the requirements for reporting pension plans in financial statements.
Explain the accounting for other postretirement benefits.
Valuation of Inventories: A Cost-Basis Approachreskino1
Describe inventory classifications and different inventory systems.
Identify the goods and costs included in inventory.
Compare the cost flow assumptions used to account for inventories.
Determine the effects of inventory errors on the financial statements.
Current Liabilities, Provisions, and Contingenciesreskino1
Current Liabilities,
Provisions, and Contingencies
After studying this chapter, you should be able to:
1. Describe the nature, valuation, and reporting of current liabilities.
2. Explain the accounting for different types of provisions.
3. Explain the accounting for loss and gain contingencies.
4. Indicate how to present and analyze liability-related information
After studying this chapter, you should be able to:
1. Discuss the characteristics, valuation, and amortization of intangible assets.
2. Describe the accounting for various types of intangible assets.
3. Explain the accounting issues for recording goodwill.
4. Identify impairment procedures and presentation requirements for intangible assets.
5. Describe the accounting and presentation for research and development and similar costs.
Describe and apply the lower-of-cost-or-net realizable value rule.
Identify other inventory valuation issues.
Determine ending inventory by applying the gross profit method.
Determine ending inventory by applying the retail inventory method.
Explain how to report and analyze inventory.
This study aims to examine the tendency of fraud to the perception of
external auditors triggered by the five components of pentagon fraud:
pressure, opportunity, arrogance, rationalization,and competence. In
addition, the morality of the individual is placed as an intervention
variable for this relationship. This is a quantitative study with a survey
of external auditors at the BPK in Jakarta. The intervention model for
the research framework was developed to investigate the role of
individual morality interference. The findings suggest that the five
components of the pentagon's fraud theory are not fully proven to be
fraud triggers in the perception of external auditors. Arrogance,
rationalization, and competence have proven to have a positive effect
on the perception of fraud tendencies, while pressure and opportunity
have a negative impact on the perception of fraud tendencies. Then
pressure, rationalization, and competence are shown to negatively
impact individual morality, while opportunity and arrogance positively
impact individual morality. In addition, 5 (five) variables in fraud
pentagon theory, namely pressure, opportunity, arrogance,
rationalization, and competence, are proven to prevent the perception of
fraud tendency. This can be explained because this study is the first
study to examine pentagon fraud in the context of behavior in the
environment of government external auditors, so the results cannot be
compared with previous studies that used proxies in financial
statements as predictors of fraud.
Accounting and the Time Value of Money
After studying this chapter, you should be able to:
Describe the fundamental concepts related to the time value of money.
Solve future and present value of 1 problems.
Solve future value of ordinary and annuity due problems.
Solve present value of ordinary and annuity due problems.
Solve present value problems related to deferred annuities, bonds, and expected cash flows.
The Accounting Information System
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Describe the basic accounting information system.
Record and summarize basic transactions.
Identify and prepare adjusting entries.
Prepare financial statements from the adjusted trial balance and prepare closing entries.
Prepare financial statements for a merchandising company.
Conceptual Framework for Financial Reportingreskino1
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Describe the usefulness of a conceptual framework and the objective of financial reporting.
Identify the qualitative characteristics of accounting information and the basic elements of financial statements.
Review the basic assumptions of accounting.
Explain the application of the basic principles of accounting.
PERAN PEMODERASI KUALITAS AUDIT ATAS PENGARUH PERENCANAAN PAJAK DAN PAJAK TAN...reskino1
The purpose of this study is to examine the impact of tax planning and deferred tax assets on earnings management in manufacturing companies listed on the Indonesia Stock Exchange from 2016 to 2018.
Pengaruh Organizational Justice Dan Religiosity Terhadap Employee Fraud Denga...reskino1
This study aims to examine the influence of organizational justice and religiosity on employee fraud mediated by whistleblowing intention. This study uses primary data by distributing questionnaires to employees who work in Islamic banks in the DKI Jakarta area. Sampling was done using the purposive sampling method. This study used sample of 71 respondents. The data analysis method that used as Partial Least Square (PLS)-SEM with the help of data analysis tool SmartPLS 3.0. The results of this study indicate that religiosity shows significant effect on whistleblowing intentions. Organizational justice unable to contribute significantly to whistleblowing intention. Whistleblowing intention have a significant effect on employee fraud. Organizational justice and religiosity unable to contribute significantly to the employee fraud. Furthermore, religiosity significantly influence on employee fraud through whistleblowing intentions. Organizational justice unable to contribute significantly to employee fraud through whistleblowing intentions.
STUDY OF FRAUD TENDENCY: THE ROLE OF UNETHICAL BEHAVIORS AS MEDIATIONreskino1
Islamic banking and Islamic insurance are institutions that are trusted by the public that play an important role in the economy that should uphold Islamic values. But in fact, there are still many cases of fraud that occur in Islamic banking and Islamic insurance. This study aims to examine the determinant factor fraud tendency with the role of unethical behavior as mediation. The sample used is the financial staff of Islamic banking and Islamic insurance in DKI Jakarta as many as 118 respondents. The data analysis method used in this research is Partial Least Square (PLS-SEM). The results of this study indicate that the implementation of good corporate governance (GCG) practice has a significant effect on unethical behavior, but conformity compensation does not have a significant effect on unethical behavior. Conformity compensation, implementation of GCG practice, and unethical behavior has a significant effect on the fraud tendency. Furthermore, the implementation of GCG practice has a significant effect on fraud tendency through unethical behavior, but conformity compensation has no significant effect on fraud tendency through unethical behavior.
MODEL PENDETEKSIAN KECURANGAN LAPORAN KEUANGAN DENGAN ANALISIS FRAUD TRIANGLEreskino1
The research purposes is to create a model to detect financial statement fraud. This research examines the variable of fraud triangle and auditor industry specialization with financial statement fraud.
Samples were 30 companies of fraud and 30 non-fraud companies that
were listed on the Indonesia Stock Exchange (IDX) and sanctioned by the Financial Services Authority (FSA). The result shows the financial targets can be detect financial statement fraud, while financial stability can’t be detect financial statement fraud.
ISLAMIC WORK ETHICS AND ORGANIZATIONAL JUSTICE IMPLEMENTATION IN REACHING ACC...reskino1
The topic of business ethics from Islamic perspective has become important for business currently. This paper investigates the influence of Islamic work ethics on organizational justice and its impact on accountants’ job satisfaction. A total of 202 accountants participated in this study from the Islamic finance industry in Indonesia. The analysis uses the AMOS 21 program as a tool to solve structural equation modeling problems. The results show that Islamic work ethics positively influence the two dimensions of organizational justice, which are procedural and interactive justice, but not on distributive justice. Moreover, all dimensions of organizational justice and Islamic work ethics were found to positively influence job satisfaction.
June 3, 2024 Anti-Semitism Letter Sent to MIT President Kornbluth and MIT Cor...Levi Shapiro
Letter from the Congress of the United States regarding Anti-Semitism sent June 3rd to MIT President Sally Kornbluth, MIT Corp Chair, Mark Gorenberg
Dear Dr. Kornbluth and Mr. Gorenberg,
The US House of Representatives is deeply concerned by ongoing and pervasive acts of antisemitic
harassment and intimidation at the Massachusetts Institute of Technology (MIT). Failing to act decisively to ensure a safe learning environment for all students would be a grave dereliction of your responsibilities as President of MIT and Chair of the MIT Corporation.
This Congress will not stand idly by and allow an environment hostile to Jewish students to persist. The House believes that your institution is in violation of Title VI of the Civil Rights Act, and the inability or
unwillingness to rectify this violation through action requires accountability.
Postsecondary education is a unique opportunity for students to learn and have their ideas and beliefs challenged. However, universities receiving hundreds of millions of federal funds annually have denied
students that opportunity and have been hijacked to become venues for the promotion of terrorism, antisemitic harassment and intimidation, unlawful encampments, and in some cases, assaults and riots.
The House of Representatives will not countenance the use of federal funds to indoctrinate students into hateful, antisemitic, anti-American supporters of terrorism. Investigations into campus antisemitism by the Committee on Education and the Workforce and the Committee on Ways and Means have been expanded into a Congress-wide probe across all relevant jurisdictions to address this national crisis. The undersigned Committees will conduct oversight into the use of federal funds at MIT and its learning environment under authorities granted to each Committee.
• The Committee on Education and the Workforce has been investigating your institution since December 7, 2023. The Committee has broad jurisdiction over postsecondary education, including its compliance with Title VI of the Civil Rights Act, campus safety concerns over disruptions to the learning environment, and the awarding of federal student aid under the Higher Education Act.
• The Committee on Oversight and Accountability is investigating the sources of funding and other support flowing to groups espousing pro-Hamas propaganda and engaged in antisemitic harassment and intimidation of students. The Committee on Oversight and Accountability is the principal oversight committee of the US House of Representatives and has broad authority to investigate “any matter” at “any time” under House Rule X.
• The Committee on Ways and Means has been investigating several universities since November 15, 2023, when the Committee held a hearing entitled From Ivory Towers to Dark Corners: Investigating the Nexus Between Antisemitism, Tax-Exempt Universities, and Terror Financing. The Committee followed the hearing with letters to those institutions on January 10, 202
Welcome to TechSoup New Member Orientation and Q&A (May 2024).pdfTechSoup
In this webinar you will learn how your organization can access TechSoup's wide variety of product discount and donation programs. From hardware to software, we'll give you a tour of the tools available to help your nonprofit with productivity, collaboration, financial management, donor tracking, security, and more.
Normal Labour/ Stages of Labour/ Mechanism of LabourWasim Ak
Normal labor is also termed spontaneous labor, defined as the natural physiological process through which the fetus, placenta, and membranes are expelled from the uterus through the birth canal at term (37 to 42 weeks
A Strategic Approach: GenAI in EducationPeter Windle
Artificial Intelligence (AI) technologies such as Generative AI, Image Generators and Large Language Models have had a dramatic impact on teaching, learning and assessment over the past 18 months. The most immediate threat AI posed was to Academic Integrity with Higher Education Institutes (HEIs) focusing their efforts on combating the use of GenAI in assessment. Guidelines were developed for staff and students, policies put in place too. Innovative educators have forged paths in the use of Generative AI for teaching, learning and assessments leading to pockets of transformation springing up across HEIs, often with little or no top-down guidance, support or direction.
This Gasta posits a strategic approach to integrating AI into HEIs to prepare staff, students and the curriculum for an evolving world and workplace. We will highlight the advantages of working with these technologies beyond the realm of teaching, learning and assessment by considering prompt engineering skills, industry impact, curriculum changes, and the need for staff upskilling. In contrast, not engaging strategically with Generative AI poses risks, including falling behind peers, missed opportunities and failing to ensure our graduates remain employable. The rapid evolution of AI technologies necessitates a proactive and strategic approach if we are to remain relevant.
How to Make a Field invisible in Odoo 17Celine George
It is possible to hide or invisible some fields in odoo. Commonly using “invisible” attribute in the field definition to invisible the fields. This slide will show how to make a field invisible in odoo 17.
Honest Reviews of Tim Han LMA Course Program.pptxtimhan337
Personal development courses are widely available today, with each one promising life-changing outcomes. Tim Han’s Life Mastery Achievers (LMA) Course has drawn a lot of interest. In addition to offering my frank assessment of Success Insider’s LMA Course, this piece examines the course’s effects via a variety of Tim Han LMA course reviews and Success Insider comments.
Model Attribute Check Company Auto PropertyCeline George
In Odoo, the multi-company feature allows you to manage multiple companies within a single Odoo database instance. Each company can have its own configurations while still sharing common resources such as products, customers, and suppliers.
The French Revolution, which began in 1789, was a period of radical social and political upheaval in France. It marked the decline of absolute monarchies, the rise of secular and democratic republics, and the eventual rise of Napoleon Bonaparte. This revolutionary period is crucial in understanding the transition from feudalism to modernity in Europe.
For more information, visit-www.vavaclasses.com
Operation “Blue Star” is the only event in the history of Independent India where the state went into war with its own people. Even after about 40 years it is not clear if it was culmination of states anger over people of the region, a political game of power or start of dictatorial chapter in the democratic setup.
The people of Punjab felt alienated from main stream due to denial of their just demands during a long democratic struggle since independence. As it happen all over the word, it led to militant struggle with great loss of lives of military, police and civilian personnel. Killing of Indira Gandhi and massacre of innocent Sikhs in Delhi and other India cities was also associated with this movement.
2. 4-2
1. Identify the uses and limitations
of an income statement.
2. Describe the content and format
of the income statement.
3. Discuss how to report various
income items.
4. Explain the reporting of
accounting changes and
errors.
5. Describe related equity
statements.
After studying this chapter, you should be able to:
Income Statement and
Related Information
CHAPTER 4
LEARNING OBJECTIVES
4. 4-4
Evaluate past performance.
Help assess the risk or uncertainty of
achieving future cash flows.
Predicting future performance.
Usefulness
Income Statement
LO 1
LEARNING OBJECTIVE 1
Identify the uses and limitations
of an income statement.
5. 4-5
Limitations
Companies omit items that cannot be
measured reliably.
Income numbers are affected by the
accounting methods employed.
Income measurement involves
judgment.
LO 1
Income Statement
6. 4-6
Companies have incentives to manage income
to meet earnings targets or
to make earnings look less risky.
Earnings management is the planned timing of revenues,
expenses, gains, and losses to smooth out earnings.
Quality of earnings is reduced if earnings management
results in information that is less useful for predicting future
earnings and cash flows.
Quality of Earnings
LO 1
Income Statement
7. 4-7
Content and Format of
the Income Statement
Income – Increases in economic benefits during the
accounting period in the form of
inflows or enhancements of assets or
decreases of liabilities
that result in increases in equity, other than those relating to
contributions from shareholders.
Elements of the Income Statement
LO 2
LEARNING OBJECTIVE 2
Describe the content and format
of the income statement.
8. 4-8
Income includes both revenues and gains.
Revenues - ordinary activities of a company
Gains - may or may not arise from ordinary activities.
Elements of the Income Statement
Revenue Accounts
Sales
Fee
Interest
Dividend
Rent
Gain Accounts
Gains on the sale of long-
term assets
Unrealized gains on trading
securities
LO 2
9. 4-9
Expenses represent decreases in economic benefits during
the accounting period in the form of
outflows or depletions of assets or
incurrences of liabilities
that result in decreases in equity, other than those relating to
distributions to shareholders.
LO 2
Elements of the Income Statement
10. 4-10
Expense Accounts
Cost of goods sold
Depreciation
Interest
Rent Salary and
wages
Taxes
Expenses include both expenses and losses.
Expenses - ordinary activities of a company
Losses - may or may not arise from ordinary activities.
Loss Accounts
Losses on restructuring
charges
Losses on to sale of long-term
assets
Unrealized losses on trading
securities
LO 2
Elements of the Income Statement
11. 4-11
Intermediate
Components
Companies generally
present some or all of
these sections and totals
within the income
statement.
Income
Statement
1. Sales or Revenue
2. Cost of Goods Sold
Gross Profit
3. Selling Expenses
4. Administrative or General Expenses
5. Other Income and Expense
Income from Operations
6. Financing costs
Income before Income Tax
7. Income Tax
Income from Continuing Operations
8. Discontinued Operations
Net Income
9. Non-Controlling Interest
10. Earnings Per Share
14. 4-14
Gross Profit
Computed by deducting cost of goods sold from net
sales.
Provides a useful number for evaluating performance
and predicting future earnings.
Unusual or incidental revenues are disclosed in other income
and expense.
LO 3
Reporting Various
Income Items
LEARNING OBJECTIVE 3
Discuss how to report various
income items.
15. 4-15
Income from Operations
Determined by deducting selling and administrative
expenses as well as other income and expense from
gross profit.
Highlights items that affect regular business activities.
Used to predict the amount, timing, and uncertainty of
future cash flows.
LO 3
Reporting Various Income Items
16. 4-16
Cost of materials used
Direct labor incurred
Delivery expense
Advertising expense
Function
Expense Classification
Nature
Income From Operations
Employee benefits
Depreciation expense
Amortization expense
LO 3
17. 4-17
Cost of goods sold
Selling expenses
Administrative
expenses
Function
Expense Classification
Nature
LO 3
Income From Operations
18. 4-18
Illustration: The firm of Telaris Co. performs audit, tax, and
consulting services. It has the following revenues and expenses.
Expense Classification
Income From Operations
LO 3
21. 4-21
ILLUSTRATION 4.7
Number of Unusual Items
Reported in a Recent Year
by 500 Large Companies
Gains and Losses
Income From Operations
LO 3
22. 4-22
IASB takes the position that both
revenues and expenses and
other income and expense
should be reported as part of income from operations.
Companies can provide additional line items, headings, and subtotals
when such presentation is relevant to an understanding of the entity’s
financial performance.
Income From Operations
Gains and Losses
LO 3
23. 4-23
Additional items that may need disclosure:
Losses on write-downs of inventories to net realizable value or of
property, plant, and equipment to recoverable amount, as well as
reversals of such write-downs.
Losses on restructurings of the activities and reversals of any
provisions for the costs of restructuring.
Gains or losses on the disposal of items of property, plant, and,
equipment or investments.
Litigation settlements.
Other reversals of liabilities.
Income From Operations
Gains and Losses
LO 3
24. 4-24
Financing costs must be reported on the income statement.
Illustration 4-8
Income before Income Tax
LO 3
ILLUSTRATION 4.8
Presentation of
Finance Costs
Reporting Various Income Items
25. 4-25
Represents the income after all
revenues and
expenses
for the period are considered.
Viewed by many as the most important measure of a
company’s success or failure for a given period of time.
Net Income
LO 3
Reporting Various Income Items
26. 4-26
A significant business indicator.
Measures the dollars earned by each ordinary share.
Must be disclosed on the face of the income statement.
Net Income - Preferred Dividends
Weighted Average of Ordinary Shares Outstanding
Earnings per Share
LO 3
Reporting Various Income Items
27. 4-27
Illustration: Lancer, Inc. reports net income of $350,000. It
declares and pays preferred dividends of $50,000 for the year.
The weighted-average number of ordinary shares outstanding
during the year is 100,000 shares. Lancer computes earnings
per share as follows:
Earnings per Share
- $50,000
$350,000
100,000
= $3.00 per share
Net Income - Preferred Dividends
Weighted Average of Ordinary Shares Outstanding
ILLUSTRATION 4.9
LO 3
28. 4-28
Discontinued Operations
A component of an entity that either has been disposed of, or
is classified as held-for-sale, and:
1. Represents a major line of business or geographical area of
operations, or
2. Is part of a single, co-coordinated plan to dispose of a
major line of business or geographical area of operations,
or
3. Is a subsidiary acquired exclusively with a view to resell.
LO 3
Reporting Various Income Items
29. 4-29
Companies report as discontinued operations
1. (in a separate income statement category) the gain or loss
from disposal of a component of a business.
2. The results of operations of a component that has been or
will be disposed of separately from continuing operations.
3. The effects of discontinued operations net of tax as a
separate category, after continuing operations.
Discontinued Operations
LO 3
30. 4-30
Total loss on discontinued operations 800,000
Illustration: KC Products, a highly diversified company, decides
to discontinue its electronics division. During the current year,
the electronics division lost £300,000 (net of tax). KC sold the
division at the end of the year at a loss of £500,000 (net of tax).
Income from continuing operations £20,000,000
Discontinued operations:
Loss from operations, net of tax 300,000
Loss on disposal, net of tax 500,000
Net income £19,200,000
ILLUSTRATION 4.10
Income Statement Presentation
of Discontinued Operations LO 3
Discontinued Operations
31. 4-31
A company that
reports a
discontinued
operation must
report per share
amounts for the
line item either on
the face of the
income statement
or in the notes to
the financial
statements.
ILLUSTRATION 4.11
Discontinued Operations
33. 4-33
Relates the income tax expense to the specific items that
give rise to the amount of the tax provision.
On the income statement, income tax is allocated to:
(1) Income from continuing operations
(2) Discontinued operations
Intraperiod Tax Allocation
“let the tax follow the income”
LO 3
Reporting Various Income Items
34. 4-34
Illustration: Schindler AG has income before income tax of
€250,000. It has a gain of €100,000 from a discontinued
operation. Assuming a 30 percent income tax rate, Schindler
presents the following information on the income statement.
Discontinued Operations (Gain)
ILLUSTRATION 4.12
Intraperiod Tax Allocation
LO 3
35. 4-35
Illustration: Schindler AG has income before income tax of
€250,000. It has a loss of €100,000 from a discontinued
operation. Assuming a 30 percent income tax rate, Schindler
presents the following information on the income statement.
Discontinued Operations (Loss)
Intraperiod Tax Allocation
LO 3
ILLUSTRATION 4.13
36. 4-36
Companies may also report the tax effect of a discontinued
item by means of a note disclosure.
Discontinued Operations (Loss)
ILLUSTRATION 4.14
LO 3
Intraperiod Tax Allocation
37. 4-37
Allocation to Non-Controlling Interest
When a company prepares a consolidated income statement,
IFRS requires that net income be allocated to the controlling
and non-controlling interest. This allocation is reported at the
bottom of the income statement, after net income.
(amounts given)
ILLUSTRATION 4.15
Presentation of Non-Controlling Interest
LO 3
Reporting Various Income Items
38. 4-38
€800,000
100,000
120,000
90,000
- 220,000
- 500,000
200,000
BE4-3: Presented below is some financial information related to
Volaire Group. Compute the following:
Revenues €800,000
Income from continuing operations 100,000
Comprehensive income 120,000
Net income 90,000
Income from operations 220,000
Selling and administrative expenses 500,000
Income before income tax 200,000
Other
Income and
Expense
€80,000
LO 3
Reporting Various Income Items
39. 4-39
€800,000
100,000
120,000
90,000
220,000
500,000
- 200,000
€20,000
Revenues €800,000
Income from continuing operations 100,000
Comprehensive income 120,000
Net income 90,000
Income from operations 220,000
Selling and administrative expenses 500,000
Income before income tax 200,000
Financing
Costs
BE4-3: Presented below is some financial information related to
Volaire Group. Compute the following:
LO 3
Reporting Various Income Items
40. 4-40
€100,000
€800,000
- 100,000
120,000
90,000
220,000
500,000
200,000
Revenues €800,000
Income from continuing operations 100,000
Comprehensive income 120,000
Net income 90,000
Income from operations 220,000
Selling and administrative expenses 500,000
Income before income tax 200,000
Income Tax
BE4-3: Presented below is some financial information related to
Volaire Group. Compute the following:
LO 3
Reporting Various Income Items
41. 4-41
- €10,000
€800,000
100,000
120,000
- 90,000
220,000
500,000
200,000
Revenues €800,000
Income from continuing operations 100,000
Comprehensive income 120,000
Net income 90,000
Income from operations 220,000
Selling and administrative expenses 500,000
Income before income tax 200,000
Discontinued
Operations
BE4-3: Presented below is some financial information related to
Volaire Group. Compute the following:
LO 3
Reporting Various Income Items
42. 4-42
€30,000
€800,000
100,000
120,000
- 90,000
220,000
500,000
200,000
Revenues €800,000
Income from continuing operations 100,000
Comprehensive income 120,000
Net income 90,000
Income from operations 220,000
Selling and administrative expenses 500,000
Income before income tax 200,000
Other
Comprehensive
Income
BE4-3: Presented below is some financial information related to
Volaire Group. Compute the following:
LO 3
Reporting Various Income Items
45. 4-45
Retrospective adjustment.
Cumulative effect adjustment to beginning retained earnings.
Approach preserves comparability across years.
Examples include:
► Change from FIFO to average-cost.
► Change from the percentage-of-completion to the
completed-contract method.
Accounting Changes
and Errors
Changes in Accounting Principle
LO 4
LEARNING OBJECTIVE 4
Explain the reporting of
accounting changes and errors.
46. 4-46
Change in Accounting Principle: Gaubert Inc. decided in March
2019 to change from FIFO to weighted-average inventory pricing.
Gaubert’s income before taxes, using the new weighted-average
method in 2019, is $30,000.
ILLUSTRATION 4.17
Calculation of a Change in
Accounting Principle
ILLUSTRATION 4.18
Income Statement
Presentation of a Change
in Accounting Principle
(Based on 30% tax rate)
Pretax Income Data
Changes in Accounting Principle
LO 4
47. 4-47
Accounted for in the period of change or the period of
and the future periods if the change affects both.
Not handled retrospectively.
Not considered errors.
Examples include:
► Useful lives and residual values of depreciable assets.
► Uncollectible receivables.
► Inventory obsolescence.
Change in Accounting Estimates
Accounting Changes
LO 4
48. 4-48
Change in Estimate: Arcadia HS, purchased equipment for
$510,000 which was estimated to have a useful life of 10 years
with a residual value of $10,000 at the end of that time.
Depreciation has been recorded for 7 years on a straight-line
basis. In 2019 (year 8), it is determined that the total estimated
life should be 15 years with a residual value of $5,000 at the
end of that time.
Questions:
Does prior years’ depreciation need to be restated?
Calculate the depreciation expense for 2019.
Change in Accounting Estimates
LO 4
49. 4-49
Equipment cost $510,000
Residual value - 10,000
Depreciable base 500,000
Useful life (original) 10 years
Annual depreciation $ 50,000
Equipment $510,000
Fixed Assets:
Accumulated depreciation 350,000
Net book value (NBV) $160,000
Balance Sheet (Dec. 31, 2018)
After
7 years
x 7 years = $350,000
First, establish NBV
at date of change in
estimate.
Change in Accounting Estimates
LO 4
50. 4-50
Net book value $160,000
Residual value (new) 5,000
Depreciable base 155,000
Useful life remaining 8 years
Annual depreciation $ 19,375
Depreciation
Expense calculation
for 2019.
Depreciation Expense 19,375
Accumulated Depreciation 19,375
Journal entry for 2019
After
7 years
Change in Accounting Estimates
LO 4
51. 4-51
Result from:
► mathematical mistakes.
► mistakes in application of accounting principles.
► oversight or misuse of facts.
Corrections treated as prior period adjustments.
Adjustment to the beginning balance of retained
earnings.
Corrections of Errors
Accounting Errors
LO 4
52. 4-52
Illustration: In 2019, Tsang Ltd. determined that it incorrectly
overstated its accounts receivable and sales revenue by
NT$100,000 in 2018. In 2019, Tsang makes the following entry
to correct for this error (ignore income taxes).
Retained Earnings 100,000
Accounts Receivable 100,000
Corrections of Errors
LO 4
53. 4-53
Type of
Situation
Changes in Accounting Principle
Criteria Change from one generally accepted accounting
principle to another.
Examples Change in the basis of inventory pricing from FIFO to
average-cost.
Placement on
Income
Statement
Recast prior years’ income statements on the same
basis as the newly adopted principle.
ILLUSTRATION 4.19
Summary of Accounting
Changes and Errors
LO 4
Accounting Errors
Summary
54. 4-54
Type of
Situation
Changes in Accounting Estimate
Criteria Normal, recurring corrections and adjustments.
Examples Changes in the realizability of receivables and
inventories; changes in estimated lives of equipment,
intangible assets; changes in estimated liability for
warranty costs, income taxes, and salary payments.
Placement on
Income
Statement
Show change only in the affected accounts (not shown
net of tax) and disclose the nature of the change.
ILLUSTRATION 4.19
Summary of Accounting
Changes and Errors
LO 4
Accounting Errors
Summary
55. 4-55
Type of
Situation
Corrections of Errors
Criteria Mistake, misuse of facts.
Examples Error in reporting income and expense.
Placement on
Income
Statement
Restate prior years’ income statements to correct for
error.
ILLUSTRATION 4.19
Summary of Accounting
Changes and Errors
LO 4
Summary
Accounting Errors
56. 4-56
Increase
Net income
Change in accounting
principle
Prior period
adjustments
Decrease
Net loss
Dividends
Change in accounting
principles
Prior period
adjustments
Retained Earnings Statement
Related Equity
Statements
LO 5
LEARNING OBJECTIVE 5
Describe related equity
statements.
57. 4-57
Balance, January 1 ₩1,050,000
Net income 360,000
Dividends (300,000)
Balance, December 31 ₩1,110,000
CHOI LTD.
Statement of Retained Earnings
For the Year Ended December 31, 2019
Before issuing the report for the year ended December 31, 2019, you
discover a ₩50,000 error (net of tax) that caused 2018 inventory to
be overstated (overstated inventory caused COGS to be lower and
thus net income to be higher in 2018). Would this discovery have
any impact on the reporting of the Statement of Retained Earnings for
2019?
Retained Earnings Statement
LO 5
58. 4-58
Balance, January 1 ₩1,050,000
Prior period adjustment - error correction (50,000)
Balance, January 1 (restated) 1,000,000
Net income 360,000
Dividends (300,000)
Balance, December 31 ₩1,060,000
CHOI LTD.
Statement of Retained Earnings
For the Year Ended December 31, 2019
Retained Earnings Statement
LO 5
59. 4-59
Restrictions on Retained Earnings
Disclosed
In notes to the financial statements.
As Appropriated Retained Earnings.
Retained Earnings Statement
LO 5
60. 4-60
All changes in equity during a period except those resulting
from investments by owners and distributions to owners.
Includes:
all revenues and gains, expenses and losses reported in
net income, and
all gains and losses that bypass net income but affect
equity.
Comprehensive Income
LO 5
Related Equity Statements
61. 4-61
Income Statement (in thousands)
Sales 285,000
$
Cost of goods sold 149,000
Gross profit 136,000
Operating expenses:
Selling expenses 10,000
Administrative expenses 43,000
Total operating expense 53,000
Income from operations 83,000
Other revenue (expense):
Interest revenue 17,000
Interest expense (21,000)
Total other (4,000)
Income before taxes 79,000
Income tax expense 24,000
Net income 55,000
$
Other Comprehensive
Income
Unrealized gains and
losses on non-trading
equity securities.
Translation gains and
losses on foreign
currency.
Plus others
+
Reported in Equity
Net Income
Comprehensive Income
LO 5
62. 4-62
Companies must display the components of other
comprehensive income in one of two ways:
1. A single continuous statement (one statement
approach) or
2. two separate, but consecutive statements of net income
and other comprehensive income (two statement
approach).
Comprehensive Income
LO 5
63. 4-63
One Statement Approach
Comprehensive Income
Advantage –
does not require
the creation of a
new financial
statement.
Disadvantage -
net income buried
as a subtotal on
the statement.
ILLUSTRATION 4.21
One Statement Format:
Comprehensive Income
LO 5
65. 4-65
Statement of Changes in Equity
Required, in addition to a statement of comprehensive
income.
Generally comprised of
► Share capital—ordinary,
► Share premium—ordinary,
► Retained earnings, and the
► Accumulated balances in other comprehensive
income.
LO 5
Related Equity Statements
66. 4-66
Reports the change in each equity account and in total
equity for the period. Includes the following:
1. Accumulated comprehensive income for the period.
2. Contributions (issuances of shares) and distributions
(dividends) to owners.
3. Reconciliation of the carrying amount of each component
of equity from the beginning to the end of the period.
Statement of Changes in Equity
LO 5
68. 4-68
Regardless of the display format used, V. Gill reports the
accumulated other comprehensive income of €90,000 in the
equity section of the statement of financial position as follows.
Statement of Changes in Equity
ILLUSTRATION 4.24
Presentation of Accumulated Other Comprehensive Income in the Statement of Financial Position LO 5
69. 4-69
LEARNING OBJECTIVE 6
Compare the income statement under IFRS and U.S. GAAP.
GLOBAL ACCOUNTING INSIGHTS
LO 6
Standards issued by the FASB (U.S. GAAP) are the primary global alternative
to IFRS. As in IFRS, the income statement is a required statement for U.S.
GAAP. In addition, the content and presentation of the U.S. GAAP income
statement is similar to the one used for IFRS. A number of U.S. GAAP
standards have been issued that provide guidance on issues related to income
statement presentation.
70. 4-70
Relevant Facts
Following are the key similarities and differences between U.S. GAAP and
IFRS related to the income statement.
Similarities
• Both U.S. GAAP and IFRS require companies to indicate the amount of net
income attributable to non-controlling interest. Extraordinary-item reporting
is prohibited under IFRS and U.S. GAAP.
• Both U.S. GAAP and IFRS follow the same presentation guidelines for
discontinued operations, but IFRS defines a discontinued operation more
narrowly. Both standard-setters have indicated a willingness to develop a
similar definition to be used in the joint project on financial statement
presentation.
GLOBAL ACCOUNTING INSIGHTS
LO 6
71. 4-71
Relevant Facts
Similarities
• Both U.S. GAAP and IFRS have items that are recognized in equity as part
of other comprehensive income but do not affect net income. Both U.S.
GAAP and IFRS allow a one statement or two statement approach to
preparing the statement of comprehensive income.
Differences
• Presentation of the income statement under U.S. GAAP follows either a
single-step or multiple-step format. IFRS does not mention a single-step or
multiple-step approach.
GLOBAL ACCOUNTING INSIGHTS
LO 6
72. 4-72
Relevant Facts
Differences
• The U.S. SEC requires companies to have a functional presentation of
expenses. Under IFRS, companies must classify expenses by either nature
or function. U.S. GAAP does not have that requirement.
• U.S. GAAP has no minimum information requirements for the income
statement. However, the U.S. SEC rules have more rigorous presentation
requirements. IFRS identifies certain minimum items that should be
presented on the income statement.
• U.S. SEC regulations define many key measures and provide requirements
and limitations on companies reporting non-U.S. GAAP information. IFRS
does not define key measures like income from operations.
GLOBAL ACCOUNTING INSIGHTS
LO 6
73. 4-73
Relevant Facts
Differences
• U.S. GAAP does not permit revaluation accounting. Under IFRS,
revaluation of property, plant, and equipment, and intangible assets is
permitted and is reported as other comprehensive income. The effect of this
difference is that application of IFRS results in more transactions affecting
equity but not net income.
GLOBAL ACCOUNTING INSIGHTS
LO 6
74. 4-74
About The Numbers
The terminology used in the IFRS literature is sometimes different than what is
used in U.S. GAAP. For example, here are some of the differences.
GLOBAL ACCOUNTING INSIGHTS
LO 6
75. 4-75
On the Horizon
The IASB and FASB are working on a project that would rework the structure
of financial statements. One stage of this project will address the issue of how
to classify various items in the income statement. A main goal of this new
approach is to provide information that better represents how businesses are
run. In addition, this approach draws attention away from just one number—
net income.
GLOBAL ACCOUNTING INSIGHTS
LO 6