If you are normalizing an income statement for a gain on the sale of a division...

If you are normalizing an income statement for a gain on the sale of a division (located above operating income), which of the following would describe the relationship between normalized EBIT versus reported EBIT?

	a.	Normalized EBIT would be lower than reported EBIT
	b.	Normalized EBIT would be the same as reported EBIT
	c.	Normalized EBIT would be higher than reported EBIT
	d.	There would be no difference between Normalized and Reported EBIT

Expert Solution

If we are eliminating the effect of gain of sale of division then nominalisation of EBIT will be leading to lower normalised EBIT which is lower than the reported EBIT, due to elimination of the effect of gain on the sale of division.

Hence the correct answer will be option ( A ) Normalised EBIT would be lower than reported EBIT.

jeff jeffy answered 2 years ago

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