Question

Hi, Please explain the principle for the below-corrected questions.

Thanks

^S49.     A material item which is unusual in nature or infrequent in occurrence, but not both should be shown in the income statement

          Net of Tax       Disclosed Separately

a.             No                            No

b.            Yes                           Yes

c.             No                           Yes

d.            Yes                            No

51.     Which of the following is true about intraperiod tax allocation?

a.   It arises because certain revenue and expense items appear in the income statement either before or after they are included in the tax return.

b.   It is required for extraordinary items and cumulative effect of accounting changes but not for prior period adjustments.

c.   Its purpose is to allocate income tax expense evenly over a number of accounting periods.

d.   Its purpose is to relate the income tax expense to the items which affect the amount of tax.

54.     Which of the following items would be reported at its gross amount on the face of the income statement?

a.   Extraordinary loss

b.   Prior period adjustment

c.   Cumulative effect of a change in an accounting principle

d.   Unusual gain

^S58.     Earnings per share should always be shown separately for

a.   net income and gross margin.

b.   net income and pretax income.

c.   income before extraordinary items.

d.   extraordinary items and prior period adjustments.

^P59.     A correction of an error in prior periods' income will be reported

        In the income statement         Net of tax

a.                     Yes                              Yes

b.                      No                               No

c.                     Yes                               No

d.                      No                              Yes

Answer 1

49. An item which is infrequent or unusual in nature must not be shown Net of tax and is required to be disclosed separately in order to disclose the actual impact of that item on net profit or loss for the period. It helps the users of financial statement to judge how much profit has been affected dur to that particular item.

51 . The purpose of intraperiod tax allocation is to simply relate the tax enpense to the item which has affected the amount of tax. It is true that tax burden of all those items which are affecting tax should individually and specifically bear its its burden and that's why allocation of taxes are done

54 . Unusual gains are reported at it's gross amount on the face of income statement in order to make the users of financial statements understand the actual impact of the unusual gain. Since unusual gain will not occur every year and as a result it is very important to show it separately that how much Net profit of the year consists of unusual gain.

58 . Earning per share should be separately shown for income before extraordinary items. Since extraordinary item is an infrequent item which may not occur in the later year. So it is important for the users of financial statements to know the real earning per share after removing any impact of that extraordinary item which will not going to occur in future and that is why we show earning per share for income before extraordinary items.

59. Note that correction of an error in prior period income need must be reported retrospectively . However it need not to be shown in income statement and for sure it should be Net of tax, since actually tax is to be deducted on it. So correct answer is d.