Which of the following statements is correct regarding income reporting under IFRS?
(a) IFRS does not permit revaluation of property, plant, equipment, and intangible assets.
(b) IFRS provides the same options for reporting comprehensive income as GAAP.
(c) Companies must classify expenses by nature.
(d) IFRS provides a definition for all items presented in the income statement.
Option b is the correct answer.
GAAP is the Generally Accepted Accounting Principles that facilitate the accounting professionals to maintain the financial information of a business concern. It contains basic rules, guidelines, and principles issued by FASB.
The comprehensive income is treated in the same manner under IFRS as it is treated under the GAAP. It is computed by adding/subtracting the unrealized gains/losses in the net income generated by a business entity.
IFRS allows the business concerns to revalue their tangible and intangible assets. Also, the companies are not required to classify the expenses under the IFRS. In addition, IFRS facilitates the business entities to compute income and losses and does not necessarily provide the definition of all the items.
Question: Counting Crows Inc. provided the following information for the year 2017.
Retained earnings, January 1, 2017 $600,000
Administrative expenses 240,000
Selling expenses 300,000
Sales revenue 1,900,000
Cash dividends declared 80,000
Cost of goods sold 850,000
Loss on discontinued operations 110,000
Rent revenue 102,700
Income tax applicable to continuing operations 187,000
Income tax benefit applicable to loss on discontinued operations 60,500
Income tax applicable to unrealized holding
gain on available-for-sale securities 2,000
(a) a single-step income statement for 2017,
(b) a retained earnings statement for 2017, and
(c) a statement of comprehensive income using the two statement format. Shares outstanding during 2017 were 100,000.
Explain how a multiple-step income statement format can provide useful information to a financial statement user.
In a recent meeting with its auditor, Counting Crows’ management argued that the company should be able to prepare a pro forma income statement with some one-time administrative expenses reported similar to discontinued operations. Is such reporting consistent with the qualitative characteristics of accounting information as discussed in the conceptual framework? Explain.
Indicate where the following items would ordinarily appear on the financial statements of Boleyn, Inc. for the year 2017.
(a) The service life of certain equipment was changed from 8 to 5 years. If a 5-year life had been used previously, additional depreciation of $425,000 would have been charged.
(b) In 2017, a flood destroyed a warehouse that had a book value of $1,600,000. Floods are rare in this locality.
(c) In 2017, the company wrote off $1,000,000 of inventory that was considered obsolete.
(d) In 2014, a supply warehouse with an expected useful life of 7 years was erroneously expensed.
(e) Boleyn, Inc. changed from weighted-average to FIFO inventory pricing.
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