IFRS - Chapter 4 Flashcards
What are the two major elements of the income statement?
- Income
- Expenses
Define income
Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from shareholders.
Define expenses
Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to shareholders
What are IFRS minimum disclosure items?
- Revenue
- Tax expense
- Finance cost (“interest expense”)
- Share of the profit or loss of associates and joint ventures accounted for using the equity method
- Discontinued operations, net of tax
- Net income or net loss
Gross Profit =
Net Sales Revenue
- Gost of Goods Sold
Income from Operations =
Gross Profit
- Selling & Administrative Expenses
± Other Income & Expenses
Companies are required to present an analysis of expenses classified either by their:
-
Nature or
- (such as cost of materials used, direct labor incurred, delivery expense, advertising expense, employee benefits, depreciation expense, and amortization expense)
-
Function
- (such as cost of goods sold, selling expenses, and administrative expenses)
What is an advantage of the nature-of-expense method?
it is simple to apply because allocations of expense to different functions are not necessary
What is an advantage of the function-of-expense method?
It is often viewed as more relevant because this method identifies the major cost drivers of the company and therefore helps users assess whether these amounts are appropriate for the revenue generated
True or False:
Under IFRS, a company can present any item of income or expense as “extraordinary”.
False. Extraordinary item reporting is prohibited under IFRS.
What deems an item as “extraordinary” under GAAP?
If it is unusual in nature AND infrequent in occurence.
What is a company called that owns more than 50% of the ordinary shares?
Parent Company
It is also said that this company has a “controlling interest”.
What is a company called when another firm owns more than 50% of its ordinary shares?
Subsidiary Company
True or False:
Under IFRS, a company is required to allocate net income to the controlling and non-controlling interest.
True
True or False:
Under GAAP, a company is required to allocate net income to the controlling and non-controlling interest.
False.
GAAP does not require companies to indicate the amount of net income attributed to non-controlling interest
