Interim Financial Reporting

Question 1

For interim reporting how are losses treated that are later recovered in a later period?

Answer 1

provides that inventory losses from market declines should be recognized in the interim period in which the decline occurs. If these losses are recovered in a later period a gain should be recognized in that period but these gains “should not exceed previously recognized losses.”

However, if the losses are “expected” to reverse then no action is necessary

Question 2

What is the formula for calculating interim income tax expense?

Answer 2

Income before tax expense (10,000 + 20,000) $30,000
Tax rate x 0.25
——–
Total expense for second quarter $ 7,500
Less: Expense reported 1st quarter (1,500)
——–
Income tax expense, 2nd quarter $ 6,000