Professional Documents
Culture Documents
Earnings per
Share
The Multiple Step Income
Statement
• The presentation divides information
into major sections on the statement.
• The statement distinguishes operating
from non-operating activities.
• Continuing operations are shown
separately from irregular items.
• The income tax effects are shown
separately as well.
The Multiple Step Income
Statement
Sales Revenue
Operating
1 Section less: Cost of Goods Sold
less: Selling Expenses
less: Administrative Expenses
Non-Operating Add: Other Revenues and Gains
2
Section Less: Other Expenses and Losses
3 Income Tax
Discontinued Operations (net of tax)
Irregular Extraordinary Items (net of tax)
4
Items Cumulative Effect of a Change in
Accounting Principle (net of tax)
5 Net Income
6 Earnings per Share
Irregular Item: Discontinued
Operations
Discontinued operations refer to the
disposal of a segment. To qualify:
• The segment must be a distinct line of business
• Its assets and operations must be
distinguishable from other assets and
operations.
• A distinction is made between:
the segment’s results of operations and
the disposal of the segment’s assets
Reporting Discontinued
Operations
There are two important dates in
reporting discontinued operations:
• the measurement date (when
management commits itself to a plan
of segment’s disposal) and
• the disposal date (the date of sale of
the segment).
Irregular Item: Extraordinary
Items
• Extraordinary items are:
nonrecurring material items that
differ significantly from typical activities
• Extraordinary items must meet two tests:
they must be unusual and
they must be infrequent
• The environment in which the business
operates is of primary importance
Extraordinary Items: what they
are not
• Losses from write-down or write-off of
receivables, inventories, etc.
• Gains and losses from exchange or
translation of foreign currency
• Gains and losses from the abandonment of
property used in business
• Effects of strike
• Adjustments or accruals on long term
contracts.
Unusual Gains and Losses
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