Lupita Mora-Rubio Chapter 13 Questions September 10, 2012
#1 Sustainable income (SI): When companies look at present year net income to estimate future cash flows it must make sure it does not include “irregular items.” Irregular items can be losses, gains, revenues, or expenses. Net income (NI) adjusted for irregular item is SI. SI is the most likely level of income to be obtained in the future for the company. SI is different than NI as it does not include the irregular items in the actual year NI.
What relationship does this concept have to the treatment of irregular items on the income statements? SI is of value as it contains the NI without the “noise” of irregular items. Example of irregular item is a one in a lifetime
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On September 1 Gomez disposed of the Mexico facility at a pretax loss of $680,000. The applicable tax rate is 25%. Show the discontinued operations section of Gomez’s income statement.
Gomez Corporation
Income Statements
Discontinued operations: loss from discontinuation site in Mexico
$680,000 – 25% tax rate ($170,000) = ($510,000)
BE13-2 An inexperienced accountant for Osborn Corporation showed the following in
Osborn’s 2010 Income statement:
Income before income taxes $300,000
Income tax expense $72,000
Extraordinary loss from flood (before taxes) $60,000
Net income$168,000.
The extraordinary loss and taxable income are both subject to a 30% tax rate.
Prepare a corrected income statement beginning with “Income before income taxes.”
Income before income taxes $300,000
($300,000 – 30%)
Income tax expense $90,000
($300,000 - $90,000)
Income before irregular items $210,000
Extraordinary Item: net of $18,000 income tax savings
Extraordinary loss from flood (before taxes) $60,000
($60,000 - $18,000) ($42,000)
Net income $168,000
BE13-4 Using these data perform horizontal analysis
Patillo Company
Balance sheet
December 31 Increase (Decrease) During 2010 2010 2009 Amount Percent
Accounts receivable $ 560,000 $ 400,000 $160,000 40 (.4) (560000-400000/400000)
Inventory 780,000 650,000 130,000 20 (.2)
An income statement, also known as a profit and loss statement shows how much money a company has spent over a period of time. It also shows the costs and expenses that are associated with earning that revenue. It is an important measure of the company’s profitability. The simple building blocks of a net income formula are revenues minus expenses equal net income.
c) Value-irrelevant earnings is the “noise” component of reported earnings. This component is unrelated to a firm’s future
Page 3 Page 7 Page 12 Page 17 Page 20 Positive Accounting Theory Ethics in Accounting Accounting for Physical Assets & Intangible Assets Accounting for Assets in Mining & Agricultural Industries ounting Accounting for Provisions
1a. One potential goal of earnings management is income smoothing. Briefly discuss why income smoothing might be a goal of management, including a discussion of incentives to smooth income. What techniques might be used to accomplish income smoothing beyond the selection of depreciation and inventory costing alternatives?
The income statement (IS) also known as the profit & loss statement provides the net gain or net loss of a business entity. The importance of the income statement is to evaluate profitability of a company (Finkler, Jones, and Koyner, 2013). The best use of the IS,
With reference to the measurement of tangible non-current assets, critically evaluate whether financial statements prepared using IFRS’s provide useful information. Use specific examples from the annual reports of FTSE 100 companies to illustrate your points.
IASB. 2010, "The Conceptual Framework for Financial Reporting" IFRS, pp. A21- A38, viewed 23 April 2014,
Sustainable development means that the present generations should be able to make use of resources to live better lives in such a manner that it does not compromise the ability of future generations. For sustainable development to occur, there needs to be sustainable economic, ecological and community development. Society needs to be educated about ways in which they can use resources, especially natural, in such a manner that it does not cause harm to the environment and put future generations lives at risk.
IAS 18 considers the accounting procedure of potential components of revenue organization primarily from transactions involving the sale of goods, rendering of services, as well as through other organizations or individuals property of the reporting organization, giving interest, dividends or royalties. If the probability of the economic
Dmitry Orlov held a conference titled Definancialisation, Deglobalisation, Relocalisation in 2009. His discussion mainly focused on the sustainability of our economy. Sustainability occurs when our way of living is proportionately matched with our economic standing and well-being. The sustainability rate in our country is too low and should be increased by the reserves for the production of items such as oil and fossil fuels. However, he proposed that sustainability did not need to be factored in with the fatality percentage. He strongly believes that citizens should prepare for economic hard times without an abundant amount of money, less imported goods, and the capabilities of providing their own needs. His thoughts could work in theory and could help our economy, currently, if we followed his suggestions.
deprecation. The tax depreciation rate for this type of plant is 25%. The company tax rate is
AASB 138 defines intangible assets as “identifiable non-monetary assets without physical substance”. Such assets include but are not limited to goodwill, trademarks, patents and research and development. AASB 138 Intangible Assets has been implemented to prescribe the accounting treatment for intangible assets that have not been specifically dealt with in any other standard. Therefore, this standard only applies to intangible assets that have not been previously dealt with. Furthermore, it can be established that this standard is an example of normative accounting theories because the standard prescribes what should be done, rather than predicts what people may do. According to AASB 138 Intangible Assets, in order for an asset to be recognised in the financial statements it must meet specific criteria. The required criterion states that the asset must be identifiable, the entity has control of the asset, future economic benefits are probable and the cost of the asset can be measured reliably.
This method defines whether or not a transaction is classified as operating income or non-operating income.
Accounting is the art of measuring and communicating financial information. To maintain uniformity and consistency in preparing and maintaining books of accounts, certain rules or principles have been evolved. These rules or principles are classified as concepts and conventions. One of the important concept in accounting is “Measurement” (Mattessich, 1977)