Question

The income statement for a British company, Avon Rubber plc, is presented on the next page. Avon prepares its financial statements in accordance with IFRS.

Instructions

(a) Review the Avon Rubber income statement and identify at least three differences between the IFRS income statement and an income statement of a U.S. company as presented in the chapter.

(b) Identify any irregular items reported by Avon Rubber. Is the reporting of these irregular items in Avon’s income statement similar to reporting of these items in U.S. companies’ income statements? Explain.

Short answer

The income statement prepared under IFRS and US Companies contains a variety of differences, such as reporting of earnings per share and extraordinary, exceptional, and non-operating items.

Step-by-step solution

Meaning of Financial Statements

Financial statements are the report card of the business entities prepared by the administration after the fixed intervals to review the economic health and performance of the company and communicate the results to the concerned stakeholders.

Differences

· The income statement prepared under the IFRS does not include the extraordinary items, while an income statement of a U.S. company considers the reporting of the same.

· The U.S. companies report extraordinary items such as unrealized revenues, expenses, losses, and gains in the income statement; in contrast, IFRS reports such events separately.

· The IFRS income statement reflects both earnings per share, basic and diluted. On the other hand, U.S. Companies report only basic earnings per share in their income statement.

Identification of irregular items

Avon Rubber's income statement reports some exceptional items, such as finance income, finance cost, and other finance income, are reported. The reporting of such items is not similar to the other U.S. Companies' income statements because such items are considered non-operational events in U.S. Companies' income statements and reported as extraordinary items.