Question

Describe sustainable income and the importance of sustainable income in the evaluation of the income statement.

Choose at least two (2) items or events that will affect sustainable income of a company.

Propose the manner in which you would disclose these items or events to investors. Justify your response

Answer 1

• Sustainable means able to maintain a certain level and able to continue it over a period of time without causing any problem to achieve that level in future. Therefore, sustainable income is also a normal income of organisation but it is filtered from some irregular items like any irregular income, expenses etc that may cause problem in achieving the certain level as set by organisation in future for all stakeholders.
• There are many irregular items in normal income statement just because to comply with GAAPs and applicble Standards. Following are some example of these items which mau affects the sustainable income:-

Sale of Immovable Assets :- Profit or loss on sale of immovale property is the part of normal income statement however this is not regular income source of business unless organisation is not involve in real estate business. This will be eliminated while calculating sustainable income.

Loss from Earthquake or other disasters :- These losses are also part of normal income statement while they will not be incurred on recurring basis so these losses will also be eliminated for sustainable income.

• Item whichmay affect the sustainable income must be highlighted separately so that the user of financial statement must be aware with the effects of these items on his interest in organisation. These items must not be clubbed with any other itmes to hide it from the eyes of users of financial statement otherwise it will create a doubt in their mind regarding the sustainment of business performance.