Chapter 4 - Handout - Mervat Saleh, CA CHAPTER 4 REPORTING...

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Unformatted text preview: Mervat Saleh, CA CHAPTER 4 REPORTING FINANCIAL PERFORMANCE I - Format of the Income Statement: 1 - SINGLE-STEP Company Name Statement Title Time Period Covered Sales Interest income Dividend income Infrequent or unusual gains Total revenues Cost of goods sold Selling expenses Administrative expenses Interest expense Infrequent or unusual losses Total expenses Income from continuing operations Income taxes Income before discontinued operations Discontinued operations Income from operations (net of tax) Loss on disposal (net of tax) Net income Earnings per share disclosures $ XX XX XX XX XX XX XX XX XX fifi lam: Mervat Saleh, CA 2 - MULTIPLE-STEP Company Name Statement Title Time Period Covered Sales Cost of goods sold Gross profit Selling expenses Administrative expenses Income from operations Other income and expenses Interest income Interest expense Dividend income Infrequent or unusual gains Infrequent or unusual losses Income from continuing operations Income taxes Income before discontinued operations Discontinued operations Income from operations (net of tax) Loss on disposal (net of tax) Net income Earnings per share disclosures Iii $ XX XX $ XX XX XX XX XX $ XX XX XX XX Mervat Saleh, CA A - Presenting Expenses: Nature versus Function ' Under lFRS, analysis of expenses must be presented based on either: L Nature of expenses (e.g. purchase of materials, transportation costs, employee benefits, depreciation, etc.) - An example of a classification using the nature of expense method is as follows: Rem-en Lie Otherineeme ,3: Changes in iiwentclries offinished goods andwork in progress X}: Raw m ateri als an cl CD n s um ab l es LI 3 ed Employee benefits expense 1*: Depreciation and anmrtisatien expense Other expense-s Total expenses (X) Profit before tax 2*: - If expenses are presented by function, nature of expenses must also be disclosed 2. Function of expenses (e.g. cost of sales, administrative costs, etc.) -An example of a classification using the function of expense method is as follows: Rewen Lie 3*: Ce st pf sales ifin Gross profit Otherincen’ie 3.5:: Distribution pests (3313 Ac!ministratix-‘e expenses if": lDther expenses (Ki F‘re fit better; - Choice should result in information that is more reliable and relevant Mervat Saleh, CA B - Categories of IIS: GAAP requires that the following items be highlighted in the income statement: 1 - Continuing Operations: i. Operating Section: principal operations. Sales or revenue section. Cost of goods sold section. Selling expenses. Administrative or general expenses. ii. Non-operating Section: secondary or auxiliary activities of the company, generally net of any related expenses. iii. Income Tax. All taxes levied on income from continuing operations. 2 - Discontinued Operations: - Under IFRS: separate maior line of business or geographical area of operations, or a business qualifying as “held for sale” upon acquisition - Held for sale assets: — Separately - current 0 A distinction made between: 1. The component’s results of operations 2. Disposal of the component’s assets 0 Assets held for sale should meet the following criteria are all met: 0 Plan to sell 0 Asset available for sale 0 Active search for a buyer 0 Sale is probable within a year c Depreciation o Re-measured at lower of carrying value and fair value net of cost to sell 0 Asset is written down Mervat Saleh, CA - Discontinued Operations— Statement Presentation Income from continuing operations (net of tax) $xx, xxx Discontinued Operations: , Income (Loss) from operations (net of tax) $xx, xxx Gain (Loss) on disposal (net of tax) xx, xxx xx, xxx Net income w EPS from continuing operations $ x EPS from discontinued operations x EPS on net income ' § x 3 - Extraordinary Items: 0 Unusual and infrequent material gains and losses. 0 IFRS does not allow extraordinary items 4 - Unusual Gains and Losses: 0 Include gains and losses that do not occur frequently or are not typical for the entity 0 If they are material, they are disclosed separately on the income statement 5 - Changes in Estimates: 0 Accounted for in the current period a No adjustment is made retroactively (i.e. prior years are not adjusted) 6 - Other Comprehensive Income OCI: . o Other gains/losses that are not required by primary sources of GAAP to be included in net income. oOCI includes such items as unrealized gains and losses on certain investments and certain foreign exchange gains and losses. 0 This section includes all other changes 0 It may be included in the income statement 7 - Earnings Per Share: EPS = Net Income - Preferred Dividends Weighted Average Common Shares Outstanding - Earnings per share is subject to dilution - Both Basic EPS and Diluted EPS are presented 5 Mervat Saleh, CA N - Comprehensive Income Statement o Includes any item that causes a change in equity except for — investments by owners — distributions to owners — correction of errors and adjustments to retained earnings - Example: unrealized gains/losses on revaluation of property, plant, and equipment under the revaluation model ' Statement of comprehensive income can be presented either: — as a single combined statement, or — as two separate statements Comprehensive lncome = Net income + other comprehensive income - Example of a combined income and comprehensive income statement: Sales $800,000 Cost of goods sold (600,000) Gross profit 200,000 Operating expenses (M Net income 110,000 Other comprehensive income —- Unrealized holding gain, net of tax , (30,000) Comprehensive income $140,000 Mervat Saleh, CA Ill - IFRS - Statement of Changes in Eguity This statement presents the following: 1. Total comprehensive income 2. For each component of equity, the effects of retrospective application/restatement 3. Reconciliation between the carrying amount of each component of equity at the beginning and end of the period. Company Name Statement of changes in Equity Time Period Covered Comp. PreferredCommon Contributed Retained Acc. Other Total Income Shares Shares Surplus Earnings Commie. Beginning Balance $1,932,600 $250,000 $600,000 $300,000 1. Com - rehensive Income: Net income $257,600 $525,000 $325,000 325,000 Other comprehensive income Unrealized Holding Gain 82,000 82,000 Comprehensive Income m l 2. Dividends to shareholders: 82,000 Preferred ' (62,000) Common (120,000) 3. Issue of eguity: Preferred shares 5,000 ’ 5,000 l } Common shares E. Adjustment to correct prior error Ending Balance ...
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Chapter 4 - Handout - Mervat Saleh, CA CHAPTER 4 REPORTING...

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