Textbook Notes (363,145)
Canada (158,221)
York University (12,357)
ADMS 3585 (22)
Ping Peng (3)
Chapter 4


6 Pages
Unlock Document

York University
Administrative Studies
ADMS 3585
Ping Peng

Chapter 4: Reporting Financial Performance Presenting Expenses: Nature versus Function • Under IFRS, analysis of expenses must be presented based on either: o Nature of expenses, or o Function of expenses o If expenses are presented by function, nature of expenses must also be disclosed • No similar requirement under private entity GAAP • Choice should result in information that is more reliable and relevant Single-Step Income Statement (Assuming No Irregular Items) Revenues • Net Sales o Other Revenues o (e.g. Dividend, Rental) Expenses • Cost of Goods Sold • Selling Expenses • Administrative Expenses • Interest Expense • Income Tax Expense Net Income Earnings per Share • Presents only two groupings before Income before Discontinued Operations: 1. Revenues (includes gains) 2. Expenses (includes losses) • Income tax expense often reported separate from expenses as the last line item in determining net income • Advantages: 1. Simplicity 2. Eliminates classification problems for revenues and expenses • Disadvantage: 1. Operating and non-operating activities reported together – lower relevance Multiple-Step Income Statement (Assuming No Irregular Items) Operating Section: – Net Sales – Cost of Goods Sold – Selling Expenses – Administrative or General Expenses Non-operating Section: – Other Revenues and Gains – Other Expenses and Losses Unusual Gains/Losses : – Atypical and Material, subject to mgr intention Income Tax Net Income Earnings per share Unusual Gains and Losses  Gains and losses that do not qualify as an Extraordinary Item but are material in amount o One of Infrequent or Atypical AND does depend on Management decisions  Examples include o Write down of inventory; change in accounting estimates, gain or loss from sale of PP&E, etc.  Presentation on the income statement o Generally within “income from continuous operation”. If material, present as a separate item after operating income. If immaterial, combined with other revenue and expense items Multiple-Step Income Statement (Assuming No Irregular Items)  Operating and non-operating activities are separated o Advantages:  Highlighting regular and irregular activities allows for greater predictive value (assess future earnings) and feedback value (assess past earnings)  Provides better detail to compare companies  Allows for ratio analysis used to assess performance What If There Exist Irregular Items?  Examples of irregular items o Discontinued operation o Extraordinary gains/losses  These items must be reported separately in the Income Statement Cautions  Note that single-step and multiple-step formats o Differ only in the preparation of “income from continuing operations”. Preparation of sections thereafter are in the same way. o For both formats, without irregular items, “income from continuing operations” is indeed “net income” of the firm. o Under IFRS, EPS should be presented for BOTH income from continuing operations AND net income o The following sections should be reported NET OF TAX (i.e. intra-period tax allocation) 1. Income from continuing operations 2. Discontinued operations 3. Extraordinary items [not allowed under IFRS] 4. Other comprehensive income Extraordinary Items  Three qualifying criteria: o Infrequent (non-recurring) and unusual (atypical business activities) o Material in amount o Not primarily dependent on management or owners’ decisions  All three of these must be met in order to qualify as an Extraordinary Item  Very rare in practice  IFRS does not permit such category  PE GAAP is silent on the issue Earnings per Share • IFRS require the following EPS information on I/S o EPS based on continuing operations o EPS based on net income o Basic EPS based on weighted average of common shares outstanding o Diluted EPS (if any) based on the weighted average of common shares and potential additional shares o EPS based on discontinued operations may be disclosed in the notes to the financial statements  PE GAAP has no such requirements  One of the most important indicators; more in Chapter 17 Discontinued Operations Reporting Irregular Items- Discontinued Operations • Discontinued operations includes components that have been disposed of or are held for sale o i.e. Assets do not have to be actually disposed by reporting date to be classified into this section • The key is that the component generates its own cash flows and has its own distinct operations o PE GAAP and IFRS differ SIGNIFICANTLY! • Under private entity GAAP Components can include: an operating segment, reporting unit, subsidiary, asset group, or operations without assets  Under IFRS: Components can include: separate major line of business or geographical area of operations, or a business qualifying as “held for sale” upon acquisition Private entity GAAP less restrictive ASSET HELD FOR SALE:  Must satisfy certain criteria (p.155)  Authorized plan to sell  Asset available for immediate sale in its current state  Active search for a buyer  Sale is probable within a year  Asset is reasonably priced and actively marketed  Changes to the plan are unlikely. Re-measured at the LOWER of  CARRYING VALUE and  FAIR VALUE NET OF COST TO SELL  Once classified, no longer depreciate Presentation on income statement o Presented separately from “income from continuing operations” o Reported net of tax o Presented with a distinction made between:  The component’s results of operations  Disposal of the component’s assets Presentation on balance sheet  If asset held for sale is classified, it should be presented separately on balance sheet  Under private entity GAAP, it retains original classification as current or non-current  Under IFRS,
More Less

Related notes for ADMS 3585

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.