Not paint only 55 of the trucks it controls 100 of

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not paint only 55% of the trucks; it "controls" 100% of Verizon Wireless' trucks by virtue of its controlling interest, and it would paint all trucks. Consolidated financial statements reflect this notion of control. Verizon's balance sheet includes 100% of Verizon Wireless assets and liabilities. Because it owns only a 55% interest in Verizon Wireless assets and liabilities, Verizon reports the other 45% in equity as noncontrolling interest. The same logic applies to the income statement; that is, 100% of subsidiaries' revenues and expenses are included, and then the noncontrolling interest portion of net income is separated from net income at the bottom. ANALYZING GLOBAL REPORTS Both GAAP and IFRS use accrual accounting to prepare financial statements. Although there are vastly more similarities than differences, we highlight below a few of the more notable dif- ferences for financial statements. Balance Sheet The most visible difference is that the typical IFRS-based balance sheet is pre- sented in reverse order of liquidity. The least liquid asset, usually goodwill, is listed first and the most liquid asset, cash, is last. The same inverse liquidity order applies to liabilities. There are also several detailed presentation and measurement differences that we explain in other modules. As one example, for GAAP-based balance sheets, bank overdrafts are often netted against cash balances. IFRS does not permit this netting on the balance sheet. However, the IFRS statement of cash flows does net the cash balance with any bank overdrafts and, thus, the cash balance on the statement of cash flows might not match the cash amount on the balance sheet. Income Statement The most visible difference is that GAAP requires three years' data on the income statement whereas IFRS requires only two. Another difference is that GAAP income state- ments classify expenses by function and must separately report expenses applicable to revenues (cost of goods sold), whereas IFRS permits expense classification by function (cost of sales, sell- ing and administrative, etc.) or by type (raw materials, labor, depreciation, etc.). This means, for example, that under IFRS, there is no requirement to report a cost of sales figure. Another difference is that no item can be classified as extraordinary under IFRS. Still another is that for items either unusual or infrequent, but not both, GAAP requires separate presentation in the income statement as a component of earnings from continuing operations. IFRS also requires disclosure of these items, but permits disclosure in notes to financial statements. Statement of Cash Flows One of the more apparent differences between GAAP and IFRS is that a GAAP-based statement of cash flows classifies interest expense, interest revenue, and dividend revenue as operating cash flows, and dividends paid as financing cash flows. IFRS allows firms to choose from between the following two options: 1. Classify interest expense, dividends paid, interest revenue, and dividend revenue as operating cash flows, or 2. Classify interest expense and dividends paid as financing cash flows, and interest revenue and dividend revenue as investing cash flows.
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