...requirements and potential issues regarding the presentation of Other Comprehensive Income (OCI) for Australian reporting entities. Historically, there has been a long standing debate on what items should be included in income, operating income (dirty surplus) or an all-inclusive income (clean surplus). Dirty surplus accounting excludes all items not related to the current operations of the firm and is generally based upon by past firm transactions. The all-inclusive method recognises both operating income as well as revaluation increments (gains and losses) of net assets as part of income (clean surplus) (Hodgson, 2014). The all-inclusive income method was adopted by the Financial Accounting Standards Board (FASB) in 1997 and subsequently the International Accounting Standards Board (IASB), leading to ‘comprehensive income’ reporting. Comprehensive Income (CI) is the sum of Profit or Loss (P&L) and OCI. OCI comprises of items of income and expense not recognised in profit or loss as required or permitted by AASB (AASB, 2014) Recent Amendments permit P&L and OCI to be presented in as a single statement or in separate statements with the P&L section first. In the past, the FASB permitted a third alternative to recognize OCI in statement of equity (FASB, 1997), (AASB, 2011). Items within OCI also need to be grouped together, on the basis of whether they will eventually be ‘recycled’ to the profit or loss section of the income statement. One of the issues within the current Conceptual...
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...revaluation, the increase shall be recognized in other comprehensive income and accumulated in equity under the heading of revaluation surplus. However, the increase shall be recognized in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognized in profit or loss. If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be recognized in profit or loss. However, the decrease shall be recognized in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset. The decrease recognized in other comprehensive income reduces the amount accumulated in equity under the heading of revaluation surplus. 6.4. For the purpose of AASB 116 or AASB 136, how is ‘recoverable amount’ determined? Recoverable amount is the higher of an asset's fair value less costs to sell (sometimes called net selling price) and its value in use where: fair value is the amount obtainable from the sale of an asset in an arm's length transaction between knowledgeable, willing parties, and value in use is the discounted present value of the future cash flows expected to arise from the continuing use of an asset, and from its disposal at the end of its useful life. Determining Recoverable Amount: * If fair value less costs to sell or value in use is more than carrying amount, it is not necessary to calculate the other amount. The asset is not impaired. [IAS 36.19]...
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...capital is the investment made by shareholders when buying preferred and common stock. Several other events also affect paid-in capital. Retained earnings represents earned capital. Accumulated Other Comprehensive Income • LO18–2 Comprehensive income includes net income as well as other gains, losses, and other adjustments that change shareholders' equity but are not included in traditional net income. Comprehensive income extends our view of income beyond net income reported in an income statement to include four types of gains and losses not included in income statements: 1. Net holding gains (losses) on investments. 2. Gains (losses) from and amendments to postretirement benefit plans. 3. Deferred gains (losses) on derivatives. 4. Adjustments from foreign currency translation. OCI shares another trait with net income. Just as net income is reported periodically in the income statement and also on a cumulative basis as part of retained earnings, OCI too, is reported periodically in the statement of comprehensive income and also as accumulated other comprehensive income (AOCI) in the balance sheet along with retained earnings. In other words, we report two attributes of OCI: (1) components of comprehensive income created during the reporting period and (2) the comprehensive income accumulated over the current and prior periods. OCI is reported in the statement of comprehensive...
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...enterprise to display the items of other comprehensive income identified in this Statement with less prominence and to characterize them differently from other items of comprehensive income that are currently included in net income. Messrs. Cope and Foster believe that a primary objective in undertaking a project on reporting comprehensive income was to significantly enhance the visibility of items of other comprehensive income. They also believe that the Board inappropriately failed to respond to the clear and unequivocal call from users of financial statements for the transparent presentation of all items of comprehensive income, whose request is acknowledged in paragraphs 40 and 41 of this Statement. They also note that, as evidenced by the basis for conclusions in the Exposure Draft, the Board held views similar to theirs when it issued that document. I agree with Messrs. Cope and Foster’s concerns. My reason is as following: if the companies choose to report the items of other comprehensive income in the Statement of Changes in Equity, the visibility of these items will be decreased because there are many other important item in this statement, and the users may not focus on the important items of other comprehensive income, and at the same time, net income is reported in the Income Statement, which will make the financial statement users focus more on net income and earnings per share but not the items of other comprehensive income. b. I believe that potential adoption...
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...analysis which company provides the better level of disclosures for accounting for income tax. Finally, a documentation which reflects the team-work performance will also be presented. AASB | Requirements of the Regulation | Company Analysis--ADQ | Yes/No1 | Company Analysis--EAL | Yes/No1 | 101:54 | Minimum line items on statement of financial position(n) current tax asset/liability(o) deferred tax asset/liability | (n) N/A - ADQ made a loss in previous year(o) DTA disclosed N/A DTL - set off of DTL SFP. P34 | YesYes | (n) Current tax payable disclosed(o) DTA and DTL disclosed SFP. P32 | YesYes | 101: 56 | Deferred tax asset/liability shall not be classified as current. | DTA and DTL classified as non-currentSFP. P34 | Yes | DTA and DTL classified as non-currentSFP. P32 | Yes | 101:82(d)& 112:77 | Tax expense disclosed separately in statement of comprehensive income. | Expense disclosed SCI. P33 | Yes | Expense disclosed SCI. P30 | Yes | 101:90101:91 | Tax related to each item of other comprehensive income disclosed separately or net of tax | N/A – no items of other comprehensive incomeSCI. P33 | Yes | N/A – no items of other comprehensive incomeSCI. P30 | Yes | 101:120 | Disclosure of accounting policy for tax | Policy disclosedN2(g). P39 | Yes | Policy disclosedN3(c). P35,36 | Yes | 107:35 | Cash flow from tax on income disclosed separately as operating. | Cash received disclosed as operating outflowSCF...
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...decreases in other comprehensive income as they arise. Accounting for plan terminations and curtailments and other circumstances in which recognition of gains and losses as a component of net periodic pension cost might not be delayed is addressed in the Settlements, Curtailments, and Terminations Subsection of this Section. (b) Explain the rationale behind the accounting method described in part (a). According to FASB ASC 715-30-35 35-22 Gains and Losses Asset gains and losses are differences between the actual return on plan assets during a period and the expected return on plan assets for that period. Asset gains and losses include both changes reflected in the market-related value of plan assets and changes not yet reflected in the market-related value (that is, the difference between the fair value of assets and the market-related value). Gains or losses on transferable securities issued by the employer and included in plan assets are also included in asset gains and losses. Asset gains and losses not yet reflected in market-related value are not required to be amortized under paragraphs 715-30-35-24 through 35-25. 35-23 Gains and Losses In other words, the expected return on plan assets generally will be different from the actual return on plan assets for the year. This Subtopic provides for recognition of that difference (a net gain or loss) in other comprehensive income in the period it arises. The amount recognized in other comprehensive income is also...
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...| P | S | | | Total(USD) | Rate | Total(NTD) | Sales-COS-Dep.exp. | $ 578,300 | $ 377,000 | | | $955,300 | $30 | $28,659,000 | Income from S | 107,300 | | a. 107,300 | | 0 | | | Expenses | (450,000) | (261,000) | c. 14,500 | | (725,500) | 30 | (21,765,000) | Exchanges gain | | 5,800 | | | 5,800 | 30 | 174,000 | Net income | $ 235,600 | $ 121,800 | | | $ 235,600 | | 7,068,000 | OCI for the year-translation adjustment | (38,100) | (28,600) | c. 9,500 | a. 38,100 | (38,100) | 30 | (1,143,000) | | | | | | | | 3,805,500 | Total comprehensive income | $ 197,500 | $93,200 | | | 197,500 | | 9,730,500 | Retained Earnings 1/1 | $ 245,500 | $75,000 | b. 75,000 | | $245,500 | | 7,978,750 | Net income | 235,600 | 121,800 | | | 235,600 | 30 | 7,068,000 | Dividends | (100,000) | (42,600) | | a. 42,600 | (100,000) | 30 | (3,000,000) | Retained Earnings 12/31 | $ 381,100 | $ 154,200 | | | $ 381,100 | | 12,046,750 | OCI translation adjustment-1/1 | $0 | $0 | | | $ 0 | | | OCI for the year-translation adjustment | (38,100) | (28,600) | | | (38,100) | 30 | (1,143,000) | OCI translation adjustment-12/31 | $ (38,100) | $(28,600) | | | $ (38,100) | 30 | (1,143,000) | Other assets | $ 932,600 | $ 532,000 | | | $ 1,599,600 | 28.5 | 45,588,600 | Advance to P | | 84,000 | | d. 84,000 | 0 | | 0 | Investment In S | 551,600 | | | a. 26,600 b. 525,000 | 0 | | 0 | | | | |...
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...and did not require additional readings. Chapter thirteen introduced the concept of sustainable income, or “the most likely level of income to be obtained in the future.”(Kimmel, Weygandt, Kieso, 2011). Chapter thirteen also explains how irregular items are presented, comprehensive income, the horizontal analysis, vertical analysis, how to compute ratios, and the concept of quality of earnings. Another valuable media source was the online videos. The video “Balancing the Books: Understanding Financial Reporting” discusses accounting tools, how the balance sheet works, profit and loss, and other topics. Like the previous videos, this video directly relates to and supports the topics in the text. Also, like the videos in previous weeks, the video is a nice change of pace from reading long text. I actually liked the videos used in week two more than the video used in this week’s lesson. The “Jeopardy” style video was a little boring and the way the contestant flashed back to his experiences made it a little drawn out for my taste, however I understand the attempt to make the concepts more interesting. The other resource I used this week that I did not use in the previous weeks was my wife. My wife manages the accounts for a utility company, among other things, so she is fairly versed in accounting principles and application. My wife and I spend a lot of time working next to each other in the evenings. For some of this week’s lessons I had questions and, because...
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...Case 1 You have been hired as a consultant for Thomas Foods. Thomas Foods was incorporated in 1969. Thomas Foods sells produce purchased from farmers to neighborhood grocery stores throughout the country. Thomas Foods has asked you to implement a hedging strategy to mitigate the risks associated with any unexpected increase in price they would have to pay farmers for their harvested crops. Thomas Foods asks that you provide examples of how various hedging strategies could be implemented. The Controller of the company has no experience in this area and would need to understand the accounting treatment for whichever hedging strategy you select. Of significant importance to management is how any hedging strategy would impact operating income. =================================================================================== Case 2 You have been hired as a consultant for XYZ Research Co. XYZ Research Co. incorporated in 2010. XYZ ‘s business centers on developing new technology for interplanetary exploration. The company has many patents and has historically expensed all of the costs associated with obtaining their patents. The owners of XYZ Labs are unsure whether or not if any or all of its patent costs can be capitalized. They also are unsure if any impairment testing should be done periodically on their patents. You have been asked by the owners to look into these issues and provide the appropriate accounting treatment for patents. ===================================================================================...
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...Financial Reporting * Comprehensive Income * Issued to address the presentation of certain items that bypass the income statement and were recorded directly to equity * Focused on net income would not take into account comprehensive income items in measuring financial performance * Bypassed the incomes statement: recorded directly to stockholder’s equity * Foreign currency matters * Derivatives and hedging * Compensation –Retirement benefits. * Prior to ASC 220 entities were required to present only the accumulated balances in the statement of stockholder’s equity. To date, ASC 220 has required that comprehensive income be presented in financial statements. * ASC 220 must be reported one of three ways * Present separate statement of comprehensive income. * Combine statement of income & comprehensive income * Present comprehensive income as a section within the statement of stockholder’s equity. * GAAP vs IFRS * GAAP * Does not require a consecutive presentation of statement of income and comprehensive income. * Presents three alternatives of presenting comprehensive income * Separate statement * Combined statement with income statement * As part of the statement of changes in stockholders equity * IFRS * Presents two alternatives of presenting comprehensive income * Separate...
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...Transaction Services • • TS Insights List bullet List bullet Sub bullet evaluation of the other two sources of taxable income ― Vol. 3 Heading 2 Financial reporting in an uncertain economy A closer look at income tax valuation allowances October 2009 Additional text goes here. Heading 3 Additional text goes here. Notwithstanding early signs that the global recession may be waning, the uncertain economic future continues to constrict corporate America. As companies continue to incur losses, focus has heightened on income tax valuation allowance assessments by companies and their auditors, as well as the Securities and Exchange Commission staff, through the issuance of comment letters. Specifically, much of this focus is on whether deferred tax assets reflected on corporate balance sheets will ultimately be realized. When a deferred tax asset is not fully realizable, a valuation allowance must be established against the deferred tax asset to reduce it to a net amount that is realizable. The related expense is generally reflected in the income statement as an income tax expense. A clear understanding of the judgmental nature of valuation allowance accounting models is critical in addressing this issue. The need for judgment The accounting requirements for deferred tax assets are set out in ASC 740, "Income Taxes," which establishes a "more likely than not" threshold for recognizing deferred tax assets. The interpretation of this criteria has historically...
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...MEMORANDUM October 7, 2012 TO: Susan Rogers, CFO FROM: Mehal Patel, Staff Accountant SUBJECT: Reporting of Comprehensive Income This memo is in response to your questions regarding the reporting of comprehensive income on the financial statements of the Lennon Company. Comprehensive Income Comprehensive Income includes Net Income and Other Comprehensive Income. Purpose of reporting comprehensive income is to “report a measure of all changes in equity of an entity that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners.” Other Comprehensive Income (OCI) and impact on balance sheet OCI includes revenue, expenses, gains and losses that change shareholders’ equity but are not included in net income. OCI is reported in the balance sheet under shareholders equity as accumulated other comprehensive income (AOCI: a cumulative presentation of OCI period over period). AOCI is shown separate from retained earnings and additional paid in capital. The following items are considered as OCI (net of tax): (a) Net unrealized holdings gains (losses) on available-for-sale (AFS). (b) Debt securities transferred from held to maturity (HTM) to AFS. (c) Portion of other-than-temporary impairments (OTTI) for debt securities held as AFS or HTM not recognized in earnings. (d) Subsequent decrease (if not OTTI) or increase in fair value of AFS securities previously...
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...taken from the records of Gibson Inc. for the year 2010. Income tax applicable to income from continuing operations $119,000; income tax applicable to loss on discontinued operations $25,500; and unrealized holding gain on non-trading equity securities $15,000. | | | Gain on sale of plant assets | $ 95,000 | Cash dividends declared | $ 150,000 | Loss on discontinued operations | 75,000 | Retained earnings January 1, 2010 | 600,000 | Administrative expenses | 240,000 | Cost of goods sold | 850,000 | Rent revenue | 40,000 | Selling expenses | 300,000 | Loss on impairment of land | 60,000 | Sales | 1,700,000 | | | | | | | | Ordinary shares outstanding during 2010 were 100,000. | | | Instructions | (a) | Prepare a comprehensive income statement for 2010 using the combined approach. | | (b) | Prepare a retained earnings statement for 2010. | | | | E4-18 | (Changes in Equity) The equity section of Hasbro Inc. at January 1, 2010, was as follows. | | | Share capital—ordinary | $300,000 | Accumulated other comprehensive income | | Unrealized holding gain on non-trading equity securities | 50,000 | Retained earnings | 20,000 | | | | | | | | During the year, the company had the following transactions. | 1. | Issued 10,000 shares at $3 per share. | | 2. | Dividends of $9,000 were declared and paid. | | 3. | Net income for the year was $100,000. | | 4. | Unrealized...
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...CHAPTER 20 Accounting for Pensions and Postretirement Benefits SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 20-1 Service cost $ 333,000,000 Interest on PBO 712,000,000 Return on plan assets (566,000,000) Amortization of prior service cost 13,000,000 Amortization of net loss 145,000,000 Pension expense $ 637,000,000 BRIEF EXERCISE 20-2 Ending plan assets $ 2,000,000 Beginning plan assets 1,780,000 Increase in plan assets 220,000 Deduct: Contributions $120,000 Less: Benefits paid 200,000 (80,000) Actual return on plan assets $ 300,000 BRIEF EXERCISE 20-3 BEATY COMPANY | |General Journal Entries |Memo Record | | | | | |Projected Benefit | | | |Pension Expense | |Pension |Obligation |Plan Assets | |Items | |Cash |Asset /Liability | | | |1/1/12 | | | |280,000 Cr. |280,000 Dr. | |Service cost |27,500 Dr. | |...
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...financial analysis, there are four tools to consider, sustainable income, comparative analysis, ratio analysis and quality of earnings. While each of these tools is equally important I will provide an overview of two of these concepts to consider while deciding on a company’s financial health. Sustainable income is a level of income which is a realistic expectation of income to achieve in the future. Of course it would be very easy to call a company’s net income a realistic expectation until you consider items that can and will drastically change a company’s bottom line. Irregular items, changes in accounting principles and comprehensive income are all factors when considering a sustainable income. Irregular items are further broken down into discontinued operations and extraordinary items. Discontinued operations refer directly to the closing or disposal of a significant portion or component of a company. Extraordinary items cover extreme and rare acts such as volcano eruptions and hostile government takeovers. A change in accounting principles would take into account a company choosing to go with a more up to date or efficient form of accounting related to its business. If this happens, the changes must be made retroactive to cover the previous period. The last item which can affect a sustainable income is comprehensive income. This is income that is not reported directly in a company’s net income. This is usually changes in stockholders equity such as a sale in...
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