In its opinion No.28 titled
Financial Reporting, the Accounting Principles Board (APB) established
guidelines for the following components of interim financial reports-: revenue,
costs associated with revenue, all other costs and expenses, and income tax
expenses.
Financial Reporting, the Accounting Principles Board (APB) established
guidelines for the following components of interim financial reports-: revenue,
costs associated with revenue, all other costs and expenses, and income tax
expenses.
These guidelines are
discussed below:
discussed below:
Revenue: Revenue from products sold
or services rendered should be recognized for an interim period on the same
basis as followed for the full year. Further, business enterprises having
significant seasonal variations in revenue should disclose the seasonal nature
of their activities.
or services rendered should be recognized for an interim period on the same
basis as followed for the full year. Further, business enterprises having
significant seasonal variations in revenue should disclose the seasonal nature
of their activities.
Cost Associated with Revenue: Cost and expenses
associated directly with or allocated to products sold or services rendered
include costs of material, direct labour, and factory overhead. APB opinion No.
28 required the same accounting for these costs and expenses in interim
financial reports as in fiscal year financial statements.
associated directly with or allocated to products sold or services rendered
include costs of material, direct labour, and factory overhead. APB opinion No.
28 required the same accounting for these costs and expenses in interim
financial reports as in fiscal year financial statements.
However, the opinion
provided the following exceptions with respect to determination of cost sold
for interim financial reports.
provided the following exceptions with respect to determination of cost sold
for interim financial reports.
1. Enterprises that use the gross profit method at interim
dates to estimate cost of goods sold should disclose this fact in interim
financial reports in addition, any material adjustments reconciling estimated interim
inventories with annual physical inventories should be disclosed.
dates to estimate cost of goods sold should disclose this fact in interim
financial reports in addition, any material adjustments reconciling estimated interim
inventories with annual physical inventories should be disclosed.
2. Enterprises that use the last in, first out inventory method
and temporarily deplete a base layer of inventories during an interim reporting
period should include in cost of goods soles for the interim reporting period
the estimated cost of replacing the depleted life base layer.
and temporarily deplete a base layer of inventories during an interim reporting
period should include in cost of goods soles for the interim reporting period
the estimated cost of replacing the depleted life base layer.
Analysis of interim statements
It is not necessary or
worse to wait for the completion of a full year’s activities careful starting
to draw conclusions from trends that should be obvious to the careful analyst.
A comparative study of the actual with budget for three months and a projection
for the entire year based on the assumption that the experience, for the first
three months compared to budget is a good indicator of what ca be expected for
the next nine months.
worse to wait for the completion of a full year’s activities careful starting
to draw conclusions from trends that should be obvious to the careful analyst.
A comparative study of the actual with budget for three months and a projection
for the entire year based on the assumption that the experience, for the first
three months compared to budget is a good indicator of what ca be expected for
the next nine months.
