Other Reporting Issues Comprehensive Income All changes in equity during a period except those resulting from investments by owners and distributions to owners. Includes: all revenues and gains, expenses and losses reported in net income, and all gains and losses that bypass net income but affect equity. LO 9 Explain how to report other comprehensive income.

Other Reporting Issues Comprehensive Income Other Comprehensive Income + Income Statement Unrealized gains and losses on available-for-sale securities. Translation gains and losses on foreign currency. Plus others Reported in Equity LO 9 Explain how to report other comprehensive income.

Other Reporting Issues Two approaches to reporting Comprehensive Income: A second income statement. A combined statement of comprehensive income. LO 9 Explain how to report other comprehensive income.

Other Reporting Issues Comprehensive Income Two-statement format: Comprehensive Income Illustration 4-21 LO 9 Explain how to report other comprehensive income.

Other Reporting Issues Comprehensive Income Combined statement format: Comprehensive Income Illustration 4-22 LO 9 Explain how to report other comprehensive income.

Other Reporting Issues Statement of Changes in Equity Required, in addition to a statement of comprehensive income. Generally comprised of share capital—ordinary, share premium—ordinary, retained earnings, and the accumulated balances in other comprehensive items. LO 9 Explain how to report other comprehensive income.

Other Reporting Issues Statement of Changes in Equity Reports the change in each equity account and in total equity for the period. Comprehensive income for the period. Contributions (issuances of shares) and distributions (dividends) to owners. Reconciliation of the carrying amount of each component of equity from the beginning to the end of the period. LO 9 Explain how to report other comprehensive income.

Other Reporting Issues Statement of Changes in Equity Illustration 4-23 LO 9 Explain how to report other comprehensive income.

Other Reporting Issues Statement of Changes in Equity Regardless of the display format used, V. Gill reports the accumulated other comprehensive income of $90,000 in the equity section of the statement of financial position as follows. Illustration 4-24 LO 9 Explain how to report other comprehensive income.

Inventory Costing “First-In-First-Out (FIFO)” Illustration 6-5 SO 2 Explain the accounting for inventories and apply the inventory cost flow methods. Answer on notes page

Inventory Costing “First-In-First-Out (FIFO)” Illustration 6-5 SO 2 Explain the accounting for inventories and apply the inventory cost flow methods.

Inventory Costing “Average Cost” Illustration 6-8 SO 2 Explain the accounting for inventories and apply the inventory cost flow methods. Answer on notes page

Inventory Costing “Average Cost” Illustration 6-8 SO 2 Explain the accounting for inventories and apply the inventory cost flow methods.

Inventory Costing Financial Statement and Tax Effects Illustration 6-9 Income Statement Effects SO 3 Explain the financial effects of the inventory cost flow assumptions.

Tax Effects Inventory Costing In a period of inflation: FIFO - inventory and net income higher. AVERAGE Cost - lower income taxes. SO 3 Explain the financial effects of the inventory cost flow assumptions.

Inventory Costing Lower-of-Cost-or-Net Realizable Value When the value of inventory is lower than its cost Companies can “write down” the inventory to its net realizable value in the period in which the price decline occurs. Net realizable value refers to the net amount that a company expects to realize (receive) from the sale of inventory. SO 4 Explain the lower-of-cost-or-net realizable value basis of accounting for inventories.

Inventory Costing Lower-of-Cost-or-Net Realizable Value Illustration: Assume that Ken Tuckie TV has the following lines of merchandise with costs and market values as indicated. Illustration 6-10 SO 4 Explain the lower-of-cost-or-net realizable value basis of accounting for inventories.

Lower-of-Cost-or-Net Realizable Value Illustration of LCNRV: Regner Foods computes its inventory at LCNRV. Illustration 9-3 LO 1 Describe and apply the lower-of-cost-or-net realizable value rule.

Lower-of-Cost-or-Net Realizable Value Recording Net Realizable Value Instead of Cost Cost of goods sold (before adj. to NRV) $ 108,000 Ending inventory (cost) 82,000 Ending inventory (at NRV) 70,000 Loss Method Loss due to decline to NRV 12,000 Inventory 12,000 COGS Method Cost of goods sold 12,000 Inventory 12,000 LO 1 Describe and apply the lower-of-cost-or-net realizable value rule.

Lower-of-Cost-or-Net Realizable Value Statement of Financial Position Presentation Partial Statement LO 1 Describe and apply the lower-of-cost-or-net realizable value rule.

Lower-of-Cost-or-Net Realizable Value Income Statement Presentation LO 1

Lower-of-Cost-or-Net Realizable Value Use of an Allowance Instead of crediting the Inventory account for net realizable value adjustments, companies generally use an allowance account. Loss Method Loss due to decline to NRV 12,000 Allowance to reduce inventory to NRV 12,000 LO 1 Describe and apply the lower-of-cost-or-net realizable value rule.

Lower-of-Cost-or-Net Realizable Value Statement of Financial Position Presentation Partial Statement LO 1 Describe and apply the lower-of-cost-or-net realizable value rule.

Classification of Cash Flows Operating Activities Investing Activities Financing Activities Income Statement Transactions Changes in Investments and Long-Term Asset Items Changes in Long-Term Liabilities and Stockholders’ Equity IFRS allows some flexibility regarding the classification of certain items such as interest, dividends, and taxes. LO 2 Identify the major classifications of cash flows.

Classification of Cash Flows LO 2 Identify the major classifications of cash flows.

Classification of Cash Flows Illustration 23-1 Classification of Typical Cash Inflows and Outflows LO 2

Format of the Statement of Cash Flows Presentation: Operating activities. Investing activities. Financing activities. Direct Method Indirect Method Report inflows and outflows from investing and financing activities separately. LO 2 Identify the major classifications of cash flows.

First Example - 2010 Illustration: Tax Consultants Inc. started on January 1, 2010, when it issued 60,000 shares of $1 par value common stock for $60,000 cash. The company rented its office space, furniture, and equipment, and performed tax consulting services throughout the first year. The comparative statements of financial position at the beginning and end of the year 2010 appear in Illustration 23-3. Illustration 23-4 shows the income statement and additional information for Tax Consultants. LO 2 Identify the major classifications of cash flows.

First Example - 2010 Illustration 23-3 Comparative Statements of Financial Position, Tax Consultants Inc., Year 1 Illustration 23-3 Illustration 23-4 Income Statement, Tax Consultants Inc., Year 1

First Example - 2010 Step 1: Determine the Change in Cash Illustration 23-3 LO 2 Identify the major classifications of cash flows.

First Example - 2010 Direct Method Deducts operating cash disbursements from operating cash receipts. Illustration 23-6 “Net cash provided by operating activities” is the equivalent of cash basis net income. LO 4 Contrast the direct and indirect methods of calculating net cash flow from operating activities.

First Example - 2010 Direct Method Accounts Receivable Illustration 23-6 Accounts Receivable Illustration 23-7 1/1/10 Balance 0 Receipts from customers 89,000 Revenues 125,000 12/31/10 Balance 36,000 LO 4

First Example - 2010 Direct Method Accounts Payable 1/1/10 Balance 0 Illustration 23-6 Accounts Payable 1/1/10 Balance 0 Payments for expenses 80,000 Operating expenses 85,000 12/31/10 Balance 5,000 LO 4

First Example - 2010 Direct Method Income Tax Payable 1/1/10 Balance 0 Illustration 23-6 Income Tax Payable 1/1/10 Balance 0 Payments for taxes 6,000 Tax expense 6,000 12/31/10 Balance 0 LO 4

First Example - 2010 Indirect Method Illustration 23-8 Computation of Net Cash Flow from Operating Activities, Year 1—Indirect Method Indirect Method Common adjustments to Net Income (Loss): Depreciation and amortization expense. Gain or loss on disposition of long-term assets. Change in current assets and current liabilities. LO 4

First Example - 2010 Step 3: Determine Net Cash Flows from Investing and Financing Activities Illustration 23-3 No long-term assets, thus no investing activities. LO 5 Determine net cash flows from investing and financing activities.

First Example - 2010 Step 3: Determine Net Cash Flows from Investing and Financing Activities Illustration 23-3 Purchase of common stock for $60,000 (Financing). LO 5 Determine net cash flows from investing and financing activities.

First Example - 2010 Step 3: Determine Net Cash Flows from Investing and Financing Activities Illustration 23-3 Net income of $34,000 (Operating). Dividends paid of $(14,000) (Financing). LO 5 Determine net cash flows from investing and financing activities.

First Example - 2010 Statement of Cash Flows - 2010 Illustration 23-9 LO 6 Prepare a statement of cash flows.

Depreciation Revising Periodic Depreciation Accounted for in the period of change and future periods (change in estimate). No restatement of prior years depreciation expense.

Depreciation Illustration: Arcadia HS, purchased equipment for €510,000 which was estimated to have a useful life of 10 years with a residual value of €10,000 at the end of that time. Depreciation has been recorded for 7 years on a straight-line basis. In 2017 (year 8), it is determined that the total estimated life should be 15 years with a residual value of €5,000 at the end of that time. Questions: What is the journal entry to correct prior years’ depreciation expense? Calculate the depreciation expense for 2017. No Entry Required

First, establish NBV at date of change in estimate. Depreciation After 7 years Equipment cost €510,000 residual value - 10,000 Depreciable base 500,000 Useful life (original) 10 years Annual depreciation € 50,000 First, establish NBV at date of change in estimate. x 7 years = €350,000 Balance Sheet (Dec. 31, 2016) Property, Plant, and Equipment Equipment €510,000 Accumulated depreciation 350,000 Net book value (NBV) €160,000

Depreciation Expense calculation for 2017. After 7 years Net book value €160,000 residual value (new) 5,000 Depreciable base 155,000 Useful life remaining 8 years Annual depreciation € 19,375 Depreciation Expense calculation for 2017. Journal entry for 2017 and future years. Depreciation expense 19,375 Accumulated depreciation 19,375

Revaluation of Plant Assets IFRS allows revaluation of plant assets to fair value If revaluation is used, it must be applied to all assets in a class of assets. Assets that are experiencing rapid price changes must be revalued on an annual basis, otherwise less frequent revaluation is acceptable. SO 4 Describe the procedure for revising periodic depreciation.

Revaluation of Plant Assets Illustration: Pernice Company applies revaluation to plant assets with a carrying value of $1,000,000, a useful life of 5 years, and no residual value. Pernice makes the following journal entries in year 1, assuming straight-line depreciation. Depreciation expense 200,000 Accumulated depreciation 200,000 After this entry, Pernice’s plant assets have a carrying amount of $800,000 ($1,000,000 - $200,000). SO 4 Describe the procedure for revising periodic depreciation.

Revaluation of Plant Assets Illustration: At the end of year 1, independent appraisers determine that the asset has a fair value of $850,000. To report the plant assets at fair value, Pernice makes the following entry. Accumulated depreciation 200,000 Plant assets 150,000 Revaluation surplus 50,000 Revaluation surplus is an example of an item reported as other comprehensive income

Revaluation of Plant Assets Pernice now reports the following information in its statement of financial position at the end of year 1. Illustration 9-18 $850,000 is the new basis of the asset. Pernice reports depreciation expense of $200,000 in the income statement and $50,000 in other comprehensive income. Depreciation in year 2 will be $212,500 ($850,000 / 4). SO 4 Describe the procedure for revising periodic depreciation.

Operating leases An entity leases an asset from another entity. The fair value of the asset is $200,000, and the lease rentals are $36000, payable yearly. The first payment is made on the delivery of the asset. The unguaranteed residual value of the asset after the six-year lease period is $4,000. The implicit interest rate in the lease is 4.8 % (approximately), and the present value of the minimum lease payment is $193872. Required Show how this lease would be accounted for in the accounts of the lessee.

Operating leases