Snider Corporation, a publicly traded company, is preparing the interim financia

Question

Snider Corporation, a publicly traded company, is preparing the interim financial data which it will issue to its shareholders at the end of the first quarter of the 2014–2015 fiscal year. Snider’s financial accounting department has compiled the following summarized revenue and expense data for the first quarter of the year. Sales revenue $72,000,000 Cost of goods sold 43,200,000 Variable selling expenses 1,200,000 Fixed selling expenses 3,600,000 Included in the fixed selling expenses was the single lump-sum payment of $2,400,000 for television advertisements for the entire year. Whether Snider should report its operating results for the quarter as if the quarter were a separate reporting period in and of itself, or as if the quarter were an integral part of the annual reporting period. State how the sales revenue, cost of goods sold, and fixed selling expenses would be reflected in Snider Corporation’s quarterly report prepared for the first quarter of the 2014–2015 fiscal year. Briefly justify your presentation. SNIDER CORPORATION INCOME STATEMENT 2014–2015 $

Explanation / Answer

Part A)

Snider should report its operating results for the quarter as if the as if the quarter were an integral part of the annual reporting period. This is known as "Integral Approach". In this case, the expenses or the incomes of which the benefits are expected to be realized over the year are deferred/accrued at the end of the interim period.Here, we are assuming that Sinder is following US GAAP and not IFRS.

IFRS (IAS 34) states that the company should follow a discrete approach treating each interim period as a seperate reporting period. Here, no accrual or deferral takes place.

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Part B)

Snider Corporation Income Statement is given below:

In the given case, sales and cost of goods sold are treated as they are part of the annual report. Variable selling expenses are linked directly to sales and would, therefore, be reported in the first quarter itself. The advertising expense is for the full year. Therefore, we will recognize only 1/4th of the total expense in the current quarter (provided the benefits are expected to be recognized in the following quarters) and the remaining 3/4th will get allocated in the remaining quarters (based on integral approach). In case of other fixed selling expenses, the benefits are assumed to be realized in the first quarter itself. Therefore, no deferral will take place.

Sinder Corporation Income Statement for the Quarter Sales 72,000,000 Cost of Goods 43,200,000 Variable Selling Expenses 1,200,000 Fixed Selling Expenses Advertisement (2,400,000/4) 600,000 Other (3,600,000 – 2,400,000) 1,200,000 Net Income $25,800,000

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