Question

The FASB has developed specific guidelines for what to include in income (Income Statement) and how to report certain unusual and infrequent items.

Discuss the appropriate treatment in the income statement for the following items:

(a)	Loss on discontinued operations.

(b)	Noncontrolling interest allocation.

(c)	Earnings per share.

(d)	Unusual and Infrequent Gains and Losses.

Answer 1

a) Loss on Discounted Operations

Discounted Operations - Discontinued operations are a part of a company’s core business that has been disposed of, and is reported separately from continued operations on the income statement.

Loss on Discontinued Operations is a line item on an income statement of a company, below Income from Continuing Operations and before Net Income. It represents the after tax gain or loss on sale of a segment of business and the after tax effect of the operations of the discontinued segment for the period.

b) Noncontrolling Interest Allocation

Non-controlling Interests represents the share in a subsidiary that is not owned by the group (i.e., the number of shares which are not owned by the parent company). or in other words Non-controlling interest (NCI), also known as minority interest, is an ownership position whereby a shareholder owns less than 50% of outstanding shares and has no control over decisions.

This can be expressed as either a share (%) of net assets of the subsidiary, or can be expressed as a fair value (effectively, a share of net assets plus a consideration for goodwill).

Minority interest belongs to other investors and is reported on the consolidated balance sheet of the owning company to reflect the claim on assets belonging to other, non-controlling shareholders. The non-controlling interest is reported in accordance with IFRS 5 and is shown at the very bottom of the Equity section on the consolidated balance sheet and subsequently on the statement of changes in equity. Also, minority interest is reported on the consolidated income statement as a share of profit belonging to minority shareholders.

c) Earnings per share

EPS is portion of company's profit allocated to each outstanding share of common stock.

Publicly owned business must report Earnings per Share (EPS) below the income line in their income statements - giving EPS a certain distinction among financial ratios.

Why is Earnings per share considered so important? because it gives investors a means of determining the amount the business earned on their stock share investments: Earnings per share tells you how much net income the business earned for each stock share you own.

d) Unusual and Infrequent gains and losses

Unusual and Infrequent gains and losses means Gains and losses happened outside the company operations and will most likely never happen again.

As per FASB rules, events that are both Unusual and Infrequent in nature, are listed as extraordinary items on income statements, will be treated such as losses from theft or early retirement of debt.

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