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Chapter 4: Q5IFRS (page 198)

The income statement for a British company, Avon Rubber plc, is presented on the next page. Avon prepares its financial statements in accordance with IFRS.

Instructions

(a) Review the Avon Rubber income statement and identify at least three differences between the IFRS income statement and an income statement of a U.S. company as presented in the chapter.

(b) Identify any irregular items reported by Avon Rubber. Is the reporting of these irregular items in Avon鈥檚 income statement similar to reporting of these items in U.S. companies鈥� income statements? Explain.

Short Answer

Expert verified

The income statement prepared under IFRS and US Companies contains a variety of differences, such as reporting of earnings per share and extraordinary, exceptional, and non-operating items.

Step by step solution

01

Meaning of Financial Statements

Financial statements are the report card of the business entities prepared by the administration after the fixed intervals to review the economic health and performance of the company and communicate the results to the concerned stakeholders.

02

Differences

路 The income statement prepared under the IFRS does not include the extraordinary items, while an income statement of a U.S. company considers the reporting of the same.

路 The U.S. companies report extraordinary items such as unrealized revenues, expenses, losses, and gains in the income statement; in contrast, IFRS reports such events separately.

路 The IFRS income statement reflects both earnings per share, basic and diluted. On the other hand, U.S. Companies report only basic earnings per share in their income statement.

03

Identification of irregular items

Avon Rubber's income statement reports some exceptional items, such as finance income, finance cost, and other finance income, are reported. The reporting of such items is not similar to the other U.S. Companies' income statements because such items are considered non-operational events in U.S. Companies' income statements and reported as extraordinary items.

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Most popular questions from this chapter

Question: Which of the following is not reported in an income statement under IFRS?

(a) Discontinued operations.

(b) Extraordinary items.

(c) Cost of goods sold.

(d) Income tax.

Presented below is information related to Viel Company at December 31, 2017, the end of its first year of operations.

Sales revenue \(310,000

Cost of goods sold \)140,000

Selling and administrative expenses \(50,000

Gain on sale of plant assets \)30,000

Unrealized gain on available-for-sale investments \(10,000

Interest expense \)6,000

Loss on discontinued operations \(12,000

Dividends declared and paid \)5,000

Instructions

Compute the following: (a) income from operations, (b) net income, (c) comprehensive income, and (d) retained earnings balance at December 31, 2017. (Ignore income tax effects.)

Question: (Earnings per Share) The stockholders鈥� equity section of Hendly Corporation appears below as of December 31, 2017.

8% preferred stock, \(50 par value, authorized

100,000 shares, outstanding 90,000 shares \)4,500,000

Common stock, \(1.00 par, authorized and issued 10 million shares 10,000,000

Additional paid-in capital 20,500,000

Retained earnings \)134,000,000

Net income 33,000,000167,000,000

\(202,000,000

Net income for 2017 reflects a total effective tax rate of 34%. Included in the net income figure is a loss of \)18,000,000 (before tax) as a result of a non-recurring major casualty. Preferred stock dividends of \(360,000 were declared and paid in 2017. Dividends of \)1,000,000 were declared and paid to common stockholders in 2017.

Instructions

Compute earnings per share data as it should appear on the income statement of Hendly Corporation.

Identify at least two situations in which important changes in value are not reported in the income statement.

Identify at least two situations in which application of different accounting methods or accounting estimates results in difficulties in comparing companies.
See all solutions

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