1. Income Statement Gaurav Taranekar 09PR001012B067

5. Single Step Statement Earnings per Share NET INCOME - = Revenues Revenues Sales Other Revenues Expenses Cost of Goods Sold Selling & Admn Expenses Interest Expense Income Tax Expense Expenses

7. Multiple Step Income Statement Operating Section Sales Revenue less: Cost of Goods Sold less: Selling Expenses less: Administrative Expenses 1 Non-Operating Section Add: Other Revenues and Gains Less: Other Expenses and Losses 2 Income Tax 3 Irregular Items Discontinued Operations (net of tax) Extraordinary Items (net of tax) Cumulative Effect of a Change in Accounting Principle (net of tax) 4 Earnings per Share 5

8. Irregular Items: Discontinued Operations

11. Irregular Items: Extraordinary Items

15. Irregular Items: Cumulative Effect of a Change in Accounting Principle

17. Change in Accounting Principle Gilbert company buys and places in service an asset on 1/1/2002. The cost is $100,000 . Estimated useful life is 4 years. Ignore salvage value. Tax rate is 30%. The company uses the double-declining method of depreciation in 2002 and 2003. It changes to the straight-line method in 2004 (1/1/2004.) Present the effect of the change in accounting principle.

18. Change in Accounting Principle Year Double-declining Straight line Difference balance depreciation depreciation 2002 $50,000 $25,000 $25,000 2003 $25,000 $25,000 $ -0- Extraordinary Item $XXXX Cumulative Effect on prior years of retroactive application of new depreciation method (net of tax, $7,500) $17,500 Presentation Net difference $25,000 Increases net income

20. Changes in Accounting Estimates: Example On 1/1/2004, Gilbert Company (see preceding example for accounting principle change) revises the useful life of the asset to be 3 more years (2004, 2005 and 2006). The salvage value is estimated to be $5,000. This change involves a revision of initial estimates. The depreciation method remains straight-line.

21. Changes in Accounting Estimates: Example Book value (1/1/2004): $50,000 Less: Salvage value ($5,000) ---------- Revised depreciable cost: $45,000 Revised depreciable cost: $45,000 Remaining useful life: 3 years Annual straight-line depreciation: $15,000 (years 2004, 2005 and 2006) Note: The changes in useful life and salvage value do not affect prior periods

25. Other Comprehensive Income – all changes in equity during a period, except those resulting from investments by or distributions to owners.