Interim reporting

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Interim financial reporting
y Interim financial reports are
commonly issued on a quarterly basis.
y They typically include cumulative, year-
to-date information, as well as
comparative information for
corresponding periods of the prior year.
y Interim financial reports provide more
timely, but less complete, information
than annual financial reports.
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Accounting rules relating to interim
reporting
y IAS No. 34 “Interim Financial Reporting”
y PSAK No. 3 “Laporan Keuangan Interim”
y APB Opinion No. 28 “Interim Financial
Reporting”

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Product costs
y Gross profit method can be used for
interim reporting purposes when it does
not use the perpetual inventory
method.

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Product costs
y LIFO inventory layers can be
liquidated during an interim period but
expected to be replaced by year end.
y Cost of sales can include the replacement
cost of the liquidated LIFO layer if the
reduction is determined to be temporary.

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LIFO inventory adjustment –
illustration
y See Beams, et. al (2006: 532), Exercise 14-
10.

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Solution to E 14-10
Current cost to replace 4,000
units at $8 $        32,000
Historical cost of inventory
liquidated 4,000 units at $5            20,000
Adjustment to cost of sales
[4,000 units * ($8 ‐ $5)]            12,000
Cost of sales         550,000
Adjusted cost of sales for
the first quarter $      562,000

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Product costs
y Permanent inventory market
declines are recognized in the interim
period.

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Product costs
y Planned variances under a standard
cost system that are expected to be
absorbed by year-end are usually deferred
at the interim date.

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Expenses other than product costs
y Annual expenses are allocated to the
interim periods expected to be benefited.
y Espenses arising in an interim period are
not deferred unless they would be
deferred at year-end.
y Advertising costs are expensed in the
interim period in which they are incurred
unless the benefits clearly apply to
subsequent interim periods.
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Expenses other than product costs
y Income tax expense for an interim
period is based on an estimated annual
effective tax rate that is applied to
taxable income from continuing
operations.
y The year-to-date tax expense less the tax
expense recognizes in earlier interim
periods is the tax expense for the current
interim period.

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Expenses other than product costs
y The tax effects of unusual and
infrequently occurring items are
calculated separately and added to the tax
expense of the interim period in which
these items are reported.
y Gains and losses discontinued
extraordinary

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Computation of estimated annual
effective tax rate
y See Beams, et. al (2006: 521) – Small
Corporation illustration.

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 Computation of estimated annual
effective tax rate
Small Corporation bases its estimate on
the following assumed tax-rate schedule:
If Taxable Income Is: The Tax Is:
But Of the
Over Not Over Pay + Excess Amount Over
0 $ 50,000 15% 0
$ 50,000 75,000 $ 7,500 + 25 $ 50,000
75,000 100,000 13,750 34 75,000
100,000 335,000 22,250 39 100,000
355,000 – 34 0

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 Small Corporation Estimated
Quarterly Income Tax

Quarter Estimated Income Rate Estimated Tax

First $ 20,000 × 15% $ 3,000
Second 30,000 × 15 4,500
Third 25,000 × 25 6,250
Fourth 25,000 × 34 8,500
Totals $100,000 $22,250
$22,250 ÷ $100,000 = 22.25%

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 Small Corporation Estimated
Quarterly Income Tax
Firs Second Third Fourth
Quarter Quarter Quarter Quarter Fiscal
Income year‐to‐date  20,000  50,000  75,000  100,000  100,000
Quarterly period income  20,000  30,000  25,000     25,000  100,000
Tax expense (22.25%)     4,450     6,675     5,563       5,563     22,250
Net income  15,550  23,325  19,438     19,438     77,750
$20,000 × 22.25% = $4,450

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 Guidelines for preparing
interim statements
At a minimum (per APB Opinion No. 28),
publicly traded companies should report:
1 aSales or gross revenues
bProvision for income taxes
cExtraordinary items net of income taxes
dCumulative-effect-type changes in
accounting principles
e net income

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 Guidelines for preparing
interim statements
2 Basic and diluted earnings per share
3 Seasonal revenue, costs, or expenses
4 Significant changes in estimates of income
tax expense
5 Disposal of a segment of a business and
extraordinary and unusual items
6 Contingent items
7 Changes in accounting principles and estimates
8 Significant changes in financial position
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 Segment disclosures in
interim reporting

1 Revenue from external customers

2 Intersegment revenues
3 A measure of segment profit or loss
Total assets for which there has been a
4
material change since the last annual report

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 Segment disclosures in
interim reporting

A description of any differences in the basis

5 of segmentation or measurement of segment
profit or loss since the last annual report
A reconciliation between segment
6
and total profits

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