ACCOUNTING, ANALYSIS, AND PRINCIPLES
Accounting
COUNTING CROWS, INC.
Income Statement
For the Year Ending December 31, 2014
Revenues
Sales revenue
$1,900,000
Rent revenue
40,000
Expenses
Cost of goods sold
850,000
Selling expenses
300,000
Administrative expenses
240,000
Income tax expense
187,000
Total expenses
1,577,000
Income from continuing operations
363,000
Discontinued operations
Loss on discontinued operations
$75,000
Less: Applicable income tax reduction
25,500
Income before extraordinary items
313,500
Extraordinary items:
Less: Applicable income tax
32,300
Net income
$ 376,200
Per share of common stock:
Income from continuing operations ($363,000 ÷
100,000)
$3.63
Loss on discontinued operations, net of tax
(0.50)
Extraordinary gain, net of tax
Net income ($376,200 ÷ 100,000)
ACCOUNTING, ANALYSIS, AND PRINCIPLES (Continued)
COUNTING CROWS, INC.
Retained Earnings Statement
For the Year ended December 31, 2014
Retained earnings, January 1
$600,000
Net income
376,200
Dividends declared
Retained earnings, December 31
$896,200
Net income
Other comprehensive income:
Unrealized holding gain, net of tax
Comprehensive income
Analysis
The multiple-step income statement recognizes important relationships
between income statement elements. For example, by separating operating
transactions from nonoperating transactions, the statement user can
Principles
Pro forma reporting is inconsistent with the conceptual framework’s qualita–
tive characteristic of comparability. For example, similar to the discussion
PROFESSIONAL RESEARCH
(a) FASB ASC 220 – Presentation, Comprehensive Income. The predecessor
standard for this topic is FAS No. 130 Reporting Comprehensive Income
(b) The definition of comprehensive income (Master Glossary of ASC):
The change in equity (net assets) of a business entity during a period
(c) Classifications within net income and examples (FASB ASC 220-10–45–7):
45-7 [Items included in net income are displayed in various
(d) The classifications within other comprehensive income (220–10–45–13):
45–13 [Items included in other comprehensive income shall be classified
based on their nature. For example, other comprehensive income
shall be classified separately into foreign currency items, gains
PROFESSIONAL RESEARCH (Continued)
(e) Reclassification adjustments (FASB ASC 220-10–45-15)
45–15 Reclassification adjustments shall be made to avoid double
counting in comprehensive income items that are displayed as
part of net income for a period that also had been displayed
as part of other comprehensive income in that period or earlier
PROFESSIONAL SIMULATION
Explanation
As indicated in the income statement below, the loss on abandonment is
reported as an “other expense and loss.” The gain on disposal of a business
Measurement
Answers are revealed in the income statement below.
JUDE LAW CORPORATION
Income Statement
For the Year Ended December 31, xxxx
Sales ………………………………………………………………….
$3,200,000
Cost of goods sold ……………………………………………..
1,920,000
Gross profit ………………………………………………………..
1,280,000 (a)
Selling expenses ………………………………………………..
$340,000
Administrative expenses …………………………………….
280,000
620,000
Income from operations ………………………………………
660,000
Other revenues and gains
Interest revenue ……………………………………………
Other expenses and losses
Loss from plant abandonment ………………………
40,000
Income tax (30% X $630,000) ……………………………….
Discontinued operations
Gain on disposal of component of business ….
Less: Applicable income tax ………………………..
63,000
PROFESSIONAL SIMULATION (Continued)
Income before extraordinary item ………………………………
504,000
Extraordinary item
Loss from earthquake ……………………………………….
40,000
Less: Applicable income tax ……………………………..
12,000
Net income ……………………………………………………………….
Per share of common stock
Income from continuing operations ………………………..
Discontinued operations, net of tax ………………………..
.63
Income before extraordinary item …………………………..
Extraordinary item, loss from earthquake, net of tax …..
Net income ……………………………………………………….
$4.76 (e)
Note to instructor: The change for inventory costing is reflected in the
current year’s cost of goods sold. If comparative statements are presented,
IFRS CONCEPTS AND APPLICATION
IFRS4-1
Companies are required to present an analysis of expenses classified
IFRS4-2
(a) A loss on discontinued operations is reported, net of tax in a separate
section between income from continuing operations and net income.
item of income or expense).
IFRS4-3
Bradshaw should report this item similar to other unusual gains and losses.
IFRS4-4
Sales revenue ……………………………………………………….
$310,000
Cost of goods sold ……………………………………………………….
140,000
Selling and administrative expenses …………………………..
50,000
Gain on sale of plant assets ……………………………………………
Income from operations …………………………..……………………..
150,000
(a)
Interest expense ……………………………………………………….
Income from continuing operations …………………………..
144,000
Discontinued operations …………………………………………………
Net income …………………………..…………………………..
Attributable to:
Non–controlling interest ………………………………………………..
(40,000)
Controlling shareholders ………………………………………………
92,000
(c)
142,000
(d)
IFRS4-5
(a) Some of the differences are:
1. Units of currency—Avon reports in pounds sterling and Earnings
per share in pence.
2. Terminology—Interest revenue and expense are referred to as
3. Avon provides a breakout of operating profit into before exceptional
items and exceptional items in 2010. The details for these items
IFRS4-5 (Continued)
(b) Both the “Exceptional items” and the “Discontinued operations” are
example of irregular items. As in the U.S., these items are included in
IFRS4-6
(a) International Accounting Standard 1, Presentation of Financial
Statements addresses the statement of comprehensive income
(b) Total comprehensive income is the change in equity during a period
resulting from transactions and other events, other than those
(c) Paragraphs 85 and 86 provide the rationale for presenting additional
information: An entity shall present additional line items, headings
IFRS4-6 (Continued)
Because the effects of an entity’s various activities, transactions and
other events differ in frequency, potential for gain or loss and
predictability, disclosing the components of financial performance
assists users in understanding the financial performance achieved
and in making projections of future financial performance. An entity
(d) When items of income or expense are material, an entity shall disclose
their nature and amount separately (Para. 97). Circumstances that
would give rise to the separate disclosure of items of income and
expense include:
a. write-downs of inventories to net realisable value or of property,
plant and equipment to recoverable amount, as well as reversals
of such write-downs;
IFRS4-7
(a) M&S uses a condensed format income statement. This format provides
highlights of a company’s performance without presenting unnecessary
detailed computations.
(d) M&S reports operating profit separately from nonoperating profit
because nonoperating profit is non-recurring and not expected to
(e) M&S did report Non-GAAP measures. The adjusted profit and earnings
per share measures provide additional useful information for share–
holders on the underlying performance of the business.
M&S provided the following disclosure:
Non-GAAP performance measures
The directors believe that the underlying profit and earnings per share
—profits and losses on the disposal of properties;
—significant and one-off impairment charges that distort underlying
trading;