Cisco System Inc the leading Internet protocol-based networking equipment compan

Question

Cisco System Inc the leading Internet protocol-based networking equipment company, has significant holdings of investment securities. Use the financial information provided to analyze Cisco’s holdings and address the following question:

Determine the effect of changes in fair value on net income and other comprehensive income in fiscal 2013, 2012, and 2011. If unrealized gains and losses on available-for-sale securities were reported in net income rather than other comprehensive income, what would be the effect on net income in fiscal 2013, 2012, and 2011?

At or for the year ended   July 27, 2013           July 28, 2012           July 30, 2011

Total Assets                      $101,191                 $91,759                  $87,095

Net Income before Taxes     $11,227                  $10,159                  $7,825

Summary of Comprehensive Income

Year Ended                           July 27, 2013           July 28, 2012           July 30, 2011

Net Income                       $9,983                    $8,041                    $6,490

Change in:

Unrealized gains and losses on

Investments, net              (37)                       (78)                       154

Derivative instruments      61                          (59)                       (21)

Cumulative translation

Adjustment and other       (77)                       (496)                      538

Comprehensive income

(Loss)                              $9,930                    $7,408                    $7,161

Explanation / Answer

A comprehensive income statement is used to measure the changes in owner's interest in business by adjusting unrealisable gains and losses.

If unrealised gains and losses on available for sale securities were reported in net income rather than comprehensive income then we need to make the following adjustments since the unrealisable gain and losses need to be adjsuted in cmprehensive income rather than net income.

The reverse adjustments have been made since the unrealised gain and loss adjustments need to be made in comprehensive income and not the net income.

Particulars July 27, 2013 July 28, 2012 July 30,2011 Net Income Before Taxes $11,227 $10,159 $7,825 Unrealised gains & losses on Investments $ 37 $ 78 $ (154) Derivative Instruments $ (61) $ 59 $ 21 Adjustment & Other $ 77 $ 496 $(538) Net profit Before Taxes $11,280 $10,792 $7,154

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