3. 4-3
1. Understand the uses and limitations of an income statement.
2. Prepare a single-step income statement.
3. Prepare a multiple-step income statement.
4. Explain how to report irregular items.
5. Explain intraperiod tax allocation.
6. Identify where to report earnings per share information.
7. Prepare a retained earnings statement.
8. Explain how to report other comprehensive income.
Learning Objectives
Learning Objectives
4. 4-4
Elements
Single-step
Multiple-step
Condensed
income statements
Income
Statement
Format of the
Income
Statement
Reporting
Irregular Items
Special
Reporting Issues
Usefulness
Limitations
Quality of
Earnings
Discontinued
operations
Extraordinary items
Unusual gains and
losses
Changes in
accounting
principles
Changes in
estimates
Corrections of
errors
Intraperiod tax
allocation
Earnings per share
Retained earnings
statement
Comprehensive
income
Income Statement and Related Information
Income Statement and Related Information
5. 4-5
Evaluate past performance.
Income Statement
Income Statement
LO 1 Understand the uses and limitations of an income statement.
Help assess the risk or uncertainty of
achieving future cash flows.
Predicting future performance.
Usefulness
6. 4-6
Income Statement
Income Statement
Limitations
LO 1 Understand the uses and limitations of an income statement.
Companies omit items that cannot be
measured reliably.
Income is affected by the accounting
methods employed.
Income measurement involves
judgment.
7. 4-7
Companies have incentives to manage income to meet or
beat Wall Street expectations, so that
market price of stock increases and
value of stock options increase.
Income Statement
Income Statement
LO 1 Understand the uses and limitations of an income statement.
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
8. 4-8
Format of the Income Statement
Format of the Income Statement
LO 1 Understand the uses and limitations of an income statement.
Revenues – Inflows or other enhancements of assets or
settlements of its liabilities that constitute the entity’s ongoing
major or central operations.
Sales
Fee revenue
Interest revenue
Examples of Revenue Accounts
Elements of the Income Statement
Dividend revenue
Rent revenue
9. 4-9
Format of the Income Statement
Format of the Income Statement
LO 1 Understand the uses and limitations of an income statement.
Expenses – Outflows or other using-up of assets or
incurrences of liabilities that constitute the entity’s ongoing
major or central operations.
Examples of Expense Accounts
Elements of the Income Statement
Cost of goods sold
Depreciation
expense
Interest expense
Rent expense
Salary expense
10. 4-10
Format of the Income Statement
Format of the Income Statement
LO 1 Understand the uses and limitations of an income statement.
Gains and losses can result from
sale of investments or plant assets,
settlement of liabilities,
write-offs of assets.
Elements of the Income Statement
Gains – Increases in equity (net assets) from peripheral or
incidental transactions.
Losses - Decreases in equity (net assets) from peripheral or
incidental transactions.
11. 4-11
Single-Step Format
Single-Step Format
LO 2 Prepare a single-step income statement.
Income Statement (in thousands)
Revenues:
Sales 285,000
$
Interest revenue 17,000
Total revenue 302,000
Expenses:
Cost of goods sold 149,000
Selling expense 10,000
Administrative expense 43,000
Interest expense 21,000
Income tax expense 24,000
Total expenses 247,000
Net income 55,000
$
Earnings per share 0.75
$
Revenues
Expenses
Net Income
Single-
Step
No distinction between
Operating and Non-operating
categories.
Single-Step Income
Statement
12. 4-12
Administrative expense: Revenues:
Officers' salaries 4,900
$ Sales 96,500
$
Depreciation 3,960 Rental revenue 17,230
Cost of goods sold 63,570 Total revenues 113,730
Rental revenue 17,230 Expenses:
Selling expense: Cost of goods sold 63,570
Transportation-out 2,690 Selling expense 17,150
Sales commissions 7,980 Administrative exense 8,860
Depreciation 6,480 Interest expense 1,860
Sales 96,500 Income tax expense 7,580
Income tax expense 7,580 Total expenses 99,020
Interest expense 1,860 Net income 14,710
$
Income Statement
For the year ended Dec. 31, 2012
Single-Step Format
Single-Step Format
LO 2 Prepare a single-step income statement.
E4-4: Prepare an income
statement from the data below.
13. 4-13
The single-step income statement emphasizes
a. the gross profit figure.
b. total revenues and total expenses.
c. extraordinary items more than it is emphasized in the
multiple-step income statement.
d. the various components of income from continuing
operations.
Review
Single-Step Format
Single-Step Format
LO 2 Prepare a single-step income statement.
14. 4-14
Separates operating transactions from
nonoperating transactions.
Matches costs and expenses with related revenues.
Highlights certain intermediate components of
income that analysts use.
LO 3 Prepare a multiple-step income statement.
Multiple-Step Income Statement
Format of the Income Statement
Format of the Income Statement
15. 4-15
1. Operating section
2. Nonoperating section
3. Income tax
4. Discontinued operations
5. Extraordinary items
6. Earnings per share
LO 3 Prepare a multiple-step income statement.
Multiple-Step Format
Multiple-Step Format
Intermediate Components of the Income Statement
16. 4-16
Multiple-Step Format
Multiple-Step Format
LO 3 Prepare a multiple-step income statement.
The presentation
divides information
into major sections.
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
$
1. Operating Section
2. Nonoperating
Section
3. Income tax
17. 4-17
Administrative expense: Sales 96,500
$
Officers' salaries 4,900
$ Cost of goods sold 63,750
Depreciation 3,960 Gross profit 32,750
Cost of goods sold 63,750 Operating Expenses:
Rental revenue 17,230 Selling expense 17,150
Selling expense: Administrative exense 8,860
Transportation-out 2,690 Total operating expenses 26,010
Sales commissions 7,980 Income from operations 6,740
Depreciation 6,480 Other revenue (expense):
Sales 96,500 Rental revenue 17,230
Income tax expense 7,580 Interest expense (1,860)
Interest expense 1,860 Total other 15,370
Income before tax 22,110
Income tax expense 7,580
Net income 14,530
$
Income Statement
For the year ended Dec. 31, 2012
Multiple-Step Format
Multiple-Step Format
Illustration (E4-4): Prepare
an income statement from the
data below.
18. 4-18
Review
A separation of operating and non operating activities of a
company exists in
a. both a multiple-step and single-step income statement.
b. a multiple-step but not a single-step income statement.
c. a single-step but not a multiple-step income statement.
d. neither a single-step nor a multiple-step income
statement.
Multiple-Step Format
Multiple-Step Format
LO 3 Prepare a multiple-step income statement.
19. 4-19
Companies are required to report irregular items in the
financial statements so users can determine the long-run
earning power of the company.
LO 4 Explain how to report irregular items.
Reporting Irregular Items
Reporting Irregular Items
Illustration 4-5
Number of Irregular Items
Reported in a Recent Year
by 500 Large Companies
20. 4-20
Irregular items fall into six categories
1. Discontinued operations.
2. Extraordinary items.
3. Unusual gains and losses.
4. Changes in accounting principle.
5. Changes in estimates.
6. Corrections of errors.
Reporting Irregular Items
Reporting Irregular Items
LO 4 Explain how to report irregular items.
21. 4-21
Occurs when,
(a) company eliminates the
results of operations and
cash flows of a component.
(b) there is no significant continuing involvement in that
component.
Amount reported “net of tax.”
Reporting Irregular Items
Reporting Irregular Items
LO 4 Explain how to report irregular items.
Discontinued Operations
22. 4-22
Illustration: KC Corporation had after tax income from continuing
operations of $55,000,000 for the year. During the year, it
disposed of its restaurant division at a pretax loss of $270,000.
Prior to disposal, the division operated at a pretax loss of $450,000
for the year. Assume a tax rate of 30%. Prepare a partial income
statement for KC.
Reporting Discontinued Operations
Reporting Discontinued Operations
Income from continuing operations $55,000,000
Discontinued operations:
Loss from operations, net of $135,000 tax
315,000
Loss on disposal, net of $81,000 tax
189,000
Net income $54,496,000
Total loss on discontinued operations 504,000
LO 4 Explain how to report irregular items.
23. 4-23
Reporting Discontinued Operations
Reporting Discontinued Operations
Discontinued
Operations are reported
after “Income from
continuing operations.”
Previously labeled as
“Net Income”.
Moved to
LO 4
Interest expense (21,000)
Total other (4,000)
Income before taxes 79,000
Income tax expense 24,000
Income from continuing operations 55,000
Discontinued operations:
Loss from operations, net of tax 315
Loss on disposal, net of tax 189
Total loss on discontinued operations 504
Net income 54,496
$
Income Statement (in thousands)
Sales 285,000
$
Cost of goods sold 149,000
Gross profit 136,000
24. 4-24
Extraordinary items are nonrecurring material items that
differ significantly from a company’s typical business activities.
Extraordinary Item must be both of an
Unusual Nature and
Occur Infrequently
Company must consider the environment in which it operates.
Amount reported “net of tax.”
Reporting Irregular Items
Reporting Irregular Items
LO 4 Explain how to report irregular items.
25. 4-25
Are these items Extraordinary?
(a) A large portion of a tobacco manufacturer’s crops
are destroyed by a hail storm. Severe damage from
hail storms in the locality where the manufacturer
grows tobacco is rare.
(b) A citrus grower's Florida crop is damaged by frost.
(c) A company sells a block of common stock of a
publicly traded company. The block of shares, which
represents less than 10% of the publicly-held
company, is the only security investment the
company has ever owned.
YES
YES
Reporting Extraordinary Items
Reporting Extraordinary Items
NO
NO
YES
YES
LO 4 Explain how to report irregular items.
26. 4-26
Are these items Extraordinary?
(d) A large diversified company sells a block of shares
from its portfolio of securities which it has acquired
for investment purposes. This is the first sale from
its portfolio of securities.
(e) An earthquake destroys one of the oil refineries
owned by a large multi-national oil company.
Earthquakes are rare in this geographical location.
(f) A company experiences a material loss in the
repurchase of a large bond issue that has been
outstanding for 3 years. The company regularly
repurchases bonds of this nature.
NO
NO
Reporting Extraordinary Items
Reporting Extraordinary Items
YES
YES
NO
NO
LO 4
27. 4-27
Illustration: KC Corporation had after tax income from continuing
operations of $55,000,000 during the year. In addition, it suffered
an unusual and infrequent pretax loss of $770,000 from a volcano
eruption. The corporation’s tax rate is 30%. Prepare a partial
income statement for KC Corporation beginning with income from
continuing operations.
Income from continuing operations $55,000,000
Extraordinary loss, net of $231,000 tax 539,000
Net income $54,461,000
Reporting Extraordinary Items
Reporting Extraordinary Items
($770,000 x 30% = $231,000 tax)
LO 4 Explain how to report irregular items.
28. 4-28
Extraordinary Items
are reported after
“Income from continuing
operations.”
LO 4
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
Income from continuing operations 55,000
Extraordinary loss, net of tax 539
Net income 54,461
$
Income Statement (in thousands)
Sales 285,000
$
Cost of goods sold 149,000
Gross profit 136,000
Previously labeled as
“Net Income”.
Moved to
Reporting Extraordinary Items
Reporting Extraordinary Items
29. 4-29 LO 4
Illustration 4-8
Income Statement Presentation
of Extraordinary Items
Reporting Extraordinary Items
Reporting Extraordinary Items
30. 4-30
Reporting when both
Discontinued
Operations and
Extraordinary Items
are present.
Discontinued
Operations
LO 4
Income before taxes 79,000
Income tax expense 24,000
Income from continuing operations 55,000
Discontinued operations:
Loss from operations, net of tax 315
Loss on disposal, net of tax 189
Total loss on discontinued operations 504
Income before extraordinary item 54,496
Extraordinary loss, net of tax 539
Net income 54,496
$
Income Statement (in thousands)
Sales 285,000
$
Cost of goods sold 149,000
Gross profit 136,000
Extraordinary Items
Reporting Irregular Items
Reporting Irregular Items
31. 4-31
Irregular transactions such as discontinued operations and
extraordinary items should be reported separately in
a. both a single-step and multiple-step income
statement.
b. a single-step income statement only.
c. a multiple-step income statement only.
d. neither a single-step nor a multiple-step income
statement.
Review
LO 4 Explain how to report irregular items.
Reporting Irregular Items
Reporting Irregular Items
32. 4-32
Material items that are unusual or infrequent, but not both,
should be reported in a separate section just above “Income
from continuing operations before income taxes.”
Examples can include:
Write-downs of inventories
Foreign exchange transaction gains and losses
The Board prohibits net-of-tax treatment for these items.
Reporting Irregular Items
Reporting Irregular Items
LO 4 Explain how to report irregular items.
Unusual Gains and Losses
33. 4-33
Reporting Irregular Items
Reporting Irregular Items
LO 4 Explain how to report irregular items.
Illustration 4-9
Income Statement
Presentation of Unusual
Charges
Unusual Gains and Losses
34. 4-34
Retrospective adjustment.
Cumulative effect adjustment to beginning retained
earnings.
Approach preserves comparability.
Examples include:
► change from FIFO to average cost.
► change from the percentage-of-completion to the
completed-contract method.
Reporting Irregular Items
Reporting Irregular Items
LO 4 Explain how to report irregular items.
Changes in Accounting Principles
35. 4-35
Reporting Irregular Items
Reporting Irregular Items
LO 4 Explain how to report irregular items.
Change in Accounting Principle: Gaubert Inc. decided in
March 2012 to change from FIFO to weighted-average inventory
pricing. Gaubert’s income before taxes, using the new weighted-
average method in 2012, is $30,000.
Illustration 4-10
Calculation of a Change in
Accounting Principle
Illustration 4-11
Income Statement
Presentation of a Change
in Accounting Principle
(Based on 30% tax rate)
Pretax Income Data
36. 4-36
Accounted for in the period of change and future
periods.
Not handled retrospectively.
Not considered errors or extraordinary items.
Examples include:
► Useful lives and salvage values of depreciable assets.
► Allowance for uncollectible receivables.
► Inventory obsolescence.
Reporting Irregular Items
Reporting Irregular Items
LO 4 Explain how to report irregular items.
Changes in Estimate
37. 4-37
Change in Estimate: Arcadia HS, purchased equipment for
$510,000 which was estimated to have a useful life of 10 years
with a salvage value of $10,000 at the end of that time.
Depreciation has been recorded for 7 years on a straight-line
basis. In 2012 (year 8), it is determined that the total estimated
life should be 15 years with a salvage value of $5,000 at the end
of that time.
Questions:
What is the journal entry to correct the prior years’
depreciation?
Calculate the depreciation expense for 2012.
Change in Estimate Example
Change in Estimate Example
LO 4 Explain how to report irregular items.
38. 4-38
Equipment $510,000
Fixed Assets:
Accumulated depreciation 350,000
Net book value (NBV) $160,000
Balance Sheet (Dec. 31, 2011)
Change in Estimate Example
Change in Estimate Example After 7 years
Equipment cost $510,000
Salvage value - 10,000
Depreciable base 500,000
Useful life (original) 10 years
Annual depreciation $ 50,000 x 7 years = $350,000
First, establish NBV
at date of change in
estimate.
LO 4 Explain how to report irregular items.
39. 4-39
Change in Estimate Example
Change in Estimate Example
Net book value $160,000
Salvage value (new) 5,000
Depreciable base 155,000
Useful life remaining 8 years
Annual depreciation $ 19,375
Depreciation
Expense calculation
for 2012.
Depreciation expense 19,375
Accumulated depreciation
19,375
Journal entry for 2012
LO 4 Explain how to report irregular items.
After 7 years
40. 4-40
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.
Reporting Irregular Items
Reporting Irregular Items
LO 4 Explain how to report irregular items.
Corrections of Errors
41. 4-41
Corrections of Errors: To illustrate, in 2013, Hillsboro Co.
determined that it incorrectly overstated its accounts
receivable and sales revenue by $100,000 in 2010. In 2013,
Hillboro makes the following entry to correct for this error
(ignore income taxes).
Reporting Irregular Items
Reporting Irregular Items
LO 4 Explain how to report irregular items.
Retained earnings 100,000
Accounts receivable
100,000
42. 4-42
Relates the income tax expense to the specific items that give
rise to the amount of the tax expense.
Income tax is allocated to the following items:
(1) Income from continuing operations before tax.
(2) Discontinued operations.
(3) Extraordinary items.
Special Reporting Issues
Special Reporting Issues
LO 5 Explain intraperiod tax allocation.
Intraperiod Tax Allocation
43. 4-43
Extraordinary Gain: Schindler Co. has income before income
tax and extraordinary item of $250,000. It has an extraordinary
gain of $100,000 from a condemnation settlement received on
one its properties. Assuming a 30 percent income tax rate.
Special Reporting Issues
Special Reporting Issues
LO 5 Explain intraperiod tax allocation.
Illustration 4-13
Intraperiod Tax Allocation
44. 4-44
Extraordinary Loss: Schindler Co. has income before income
tax and extraordinary item of $250,000. It has an extraordinary
loss from a major casualty of $100,000. Assuming a 30 percent
income tax rate.
Special Reporting Issues
Special Reporting Issues
LO 5 Explain intraperiod tax allocation.
Illustration 4-14
Intraperiod Tax Allocation
45. 4-45
Total other (4,000)
Income from cont. oper. before taxes 79,000
Income tax expense 24,000
Income from continuing operations 55,000
Discontinued operations:
Loss on operations, net of $135 tax 315
Loss on disposal, net of $61 tax 189
Total loss on discontinued operations 504
Income before extraordinary item 54,496
Extraordinary loss, net of $231 tax 539
Net income 53,957
$
Calculation of
Total Tax
Example of Intraperiod Tax Allocation
Example of Intraperiod Tax Allocation
$24,000
(135)
(61)
(231)
$23,573
LO 5 Explain intraperiod tax allocation.
Note: losses reduce
the total tax
Income Statement (in thousands)
Sales 285,000
$
Cost of goods sold 149,000
46. 4-46
An important business indicator.
Measures the dollars earned by each share of common
stock.
Must be disclosed on the the income statement.
Special Reporting Issues
Special Reporting Issues
LO 6 Identify where to report earnings per share information.
Net income - Preferred dividends
Weighted average number of shares outstanding
Earnings Per Share
47. 4-47
Earnings Per Share (BE4-8): In 2012, Hollis Corporation
reported net income of $1,000,000. It declared and paid preferred
stock dividends of $250,000. During 2012, Hollis had a weighted
average of 190,000 common shares outstanding. Compute
Hollis’s 2012 earnings per share.
Special Reporting Issues
Special Reporting Issues
- $250,000
$1,000,000
190,000
= $3.95 per share
LO 6 Identify where to report earnings per share information.
Net income - Preferred dividends
Weighted average number of shares outstanding
49. 4-49 LO 7 Prepare a retained earnings statement.
Increase
Net income
Change in accounting
principle
Error corrections
Decrease
Net loss
Dividends
Change in accounting
principles
Error corrections
Retained Earnings Statement
Special Reporting Issues
Special Reporting Issues
50. 4-50
Woods, Inc.
Statement of Retained Earnings
For the Year Ended December 31, 2012
Balance, January 1 1,050,000
$
Net income 360,000
Dividends (300,000)
Balance, December 31 1,110,000
$
Before issuing the report for the year ended December 31, 2012, you
discover a $50,000 error (net of tax) that caused 2011 inventory to be
overstated (overstated inventory caused COGS to be lower and thus net
income to be higher in 2011). Would this discovery have any impact on the
reporting of the Statement of Retained Earnings for 2012?
Special Reporting Issues
Special Reporting Issues
LO 7 Prepare a retained earnings statement.
51. 4-51
Woods, Inc.
Statement of Retained Earnings
For the Year Ended December 31, 2012
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
$
Special Reporting Issues
Special Reporting Issues
LO 7 Prepare a retained earnings statement.
52. 4-52
Restrictions on Retained Earnings
Disclosed
In notes to the financial statements.
As Appropriated Retained Earnings.
LO 7 Prepare a retained earnings statement.
Special Reporting Issues
Special Reporting Issues
53. 4-53
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
stockholders’ equity.
Special Reporting Issues
Special Reporting Issues
LO 8 Explain how to report other comprehensive income.
Comprehensive Income
54. 4-54
Special Reporting Issues
Special Reporting Issues
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 available-for-
sale securities.
Translation gains and
losses on foreign
currency.
Plus others
+
Reported in Stockholders’
Equity
LO 8 Explain how to report other comprehensive income.
Comprehensive Income
55. 4-55
Review
Gains and losses that bypass net income but affect
stockholders' equity are referred to as
a. comprehensive income.
b. other comprehensive income.
c. prior period income.
d. unusual gains and losses.
Special Reporting Issues
Special Reporting Issues
LO 8 Explain how to report other comprehensive income.
56. 4-56
Companies must display the components of other
comprehensive income in one of three ways:
1. A second separate income statement;
2. A combined income statement of comprehensive
income; or
3. As part of the statement of stockholders’ equity
Special Reporting Issues
Special Reporting Issues
LO 8 Explain how to report other comprehensive income.
58. 4-58
Special Reporting Issues
Special Reporting Issues
LO 8
Comprehensive
Income
Combined
statement
V. Gill Inc.
Combined Statement of Comprehensive Income
For the Year Ended December 31, 2012
Sales revenue 800,000
$
Cost of goods sold 600,000
Gross profit 200,000
Operating expenses 90,000
Net income 110,000
Unrealized holding gain, net of tax 30,000
Comprehensive income 140,000
$
59. 4-59
Special Reporting Issues
Special Reporting Issues
LO 8 Explain how to report other comprehensive income.
Comprehensive Income – Statement of Stockholder’s Equity
Illustration 4-20
60. 4-60
Special Reporting Issues
Special Reporting Issues
LO 8 Explain how to report other comprehensive income.
Comprehensive Income – Balance Sheet Presentation
Illustration 4-21
Presentation of
Accumulated Other
Comprehensive
Income in the
Balance Sheet
Regardless of the display format used, the accumulated other
comprehensive income of $90,000 is reported in the stockholders’
equity section of the balance sheet.
61. 4-61
Review
The FASB decided that the components of other
comprehensive income must be displayed
a. in a second separate income statement.
b. in a combined income statement of comprehensive
income.
c. as a part of the statement of stockholders‘ equity.
d. Any of these options is permissible.
Special Reporting Issues
Special Reporting Issues
LO 8 Explain how to report other comprehensive income.
62. 4-62
RELEVANT FACTS
Presentation of the income statement under GAAP follows either a
single-step or multiple-step format. IFRS does not mention a single-
step or multiple-step approach. Extraordinary items are prohibited
under IFRS.
Under IFRS, companies must classify expenses by either nature or
function. GAAP does not have that requirement, but the U.S. SEC
requires a functional presentation.
IFRS identifies certain minimum items that should be presented on
the income statement. GAAP has no minimum information
requirements. However, the SEC rules have more rigorous
presentation requirements.
63. 4-63
RELEVANT FACTS
IFRS does not define key measures like income from operations.
SEC regulations define many key measures and provide
requirements and limitations on companies reporting
non-GAAP/IFRS information.
GAAP does not require companies to indicate the amount of net
income attributable to non-controlling interest.
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.
64. 4-64
RELEVANT FACTS
Both GAAP and IFRS have items that are recognized in equity as
part of comprehensive income but do not affect net income. GAAP
provides three possible formats for presenting this information: single
income statement, combined statement of comprehensive income, in
the statement of stockholders’ equity. Most companies that follow
GAAP present this information in the statement of stockholders’
equity. IFRS allows a separate statement of comprehensive income
or a combined statement.
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.
65. 4-65
Which of the following is not reported in an income statement
under IFRS?
a. Discontinued operations.
b. Extraordinary items.
c. Cost of goods sold.
d. Income tax.
IFRS SELF-TEST QUESTION
66. 4-66
Which of the following statements is correct regarding income
reporting under IFRS?
a. IFRS does not permit revaluation of property, plant, and
equipment, and intangible assets.
b. IFRS provides the same options for reporting comprehensive
income as GAAP.
c. Companies must classify expenses either by nature or function.
d. IFRS provides a definition for all items presented in the income
statement.
IFRS SELF-TEST QUESTION
67. 4-67
Which of the following is not an acceptable way of displaying the
components of other comprehensive income under IFRS?
a. Within the statement of retained earnings.
b. Second income statement.
c. Combined statement of comprehensive income.
d. All of the above are acceptable.
IFRS SELF-TEST QUESTION
