FINANCIAL REPORTING INCOME STAT OCI SOCIE EPS

US CMA Exam Study Guide: Financial Accounting Core Mechanics US CMA PART 1 External Financial Reporting Decisions – Financial Accounting & Reporting Exam Weight: Approximately 15% The External Financial Reporting Decisions section focuses on how financial information is recognized, measured, presented, and reported to external users. For the CMA examination, students should understand not only what the accounting rule is, but also why the rule exists and how a transaction affects the financial statements. The Accounting Equation & Proprietary Theory The accounting equation is the baseline foundation of all financial statements and represents the Proprietary Theory (where assets belong either to creditors or shareholders). Assets = Equity+ Liabilities CMA Exam Mindset Always ask: "What information would help an external user make a better economic decision?" ________________________________________ 1.2 Qualitative Characteristics of Useful Financial Information Fundamental Qualitative Characteristics 1. Relevance Information is relevant when it can influence users' decisions. Relevant information has: • Predictive value • Confirmatory value • Or both 2. Faithful Representation Information should represent the underlying economic phenomenon faithfully. It should be: • Complete • Neutral • Free from material error Enhancing Qualitative Characteristics The four enhancing characteristics are: 1. Comparability 2. Verifiability 3. Timeliness 4. Understandability Exam Trap Do not confuse: Fundamental → Relevance + Faithful Representation with Enhancing → Comparability + Verifiability + Timeliness + Understandability ________________________________________ 1. GAIN ON DISCONTINUATION OF PART OF OPERATION/BRANCH/SUBSIDIARY COMAPNY SAY 200,000 (TAX THEREON 20,000) AND 2 . LOSS FROM PLANT DESTROYED BY EARTHQUAKE 80,000 NOW THIS TWO TRANSACTION ARE NOT PART OF THIS INCOME STATEMENT BUT IMMEDIATELY AFTER NET INCOME FR CONTINUEING OP WE CAN ACCOUNBT THIS 2ND TRANSACTION IS EXTRA ORDINARY TRANSACTION BCOZ IT IS BEYONDTHE CONTROL OF ORGANIZATION/MANAGEMENT. EXTRAORDINARY TRANSACTION ARE THOSE WHICH ARE UNUSUAL AS WELL AS INFREQUENT IN NATURE , IT IS NOT CONTROLLABLE BY MANAGEMENT , EXAMPLE LOSS OF ASSETS OR LOSS OF REVENUE DUE TO NATURAL CALAMITIES/ GOVE ACTION/GOVT POLICY/WAR SITUATION./ENEMY ACTION ETC