Memo on Earthquake Essay Example | Topics and Well Written Essays - 750 words

Memo on Earthquake - Essay slipOption 1 is to propound it as an odd loss disunite from operations. And Option 2 is to report the loss in a continue operation barely treat it as a cave in part in the income assertion. These two options would require proper disclosure in our foot nones of the fount. The reporting of droll items (losses) has an advantage, that is, they are not included under normal operating income which leave behind be construed by stakeholders and creditors as items that will not happen in the foreseeable future. Hence, the events personal effects on net income are not in any way reflects the true status of the business operation since it is not a recurring event. According to Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 225-20-45-2 extraordinary items are events and minutes that are distinguished by their unusual and by infrequency of their occurrence. Thus, both of the following criteria should be met to affiliat e an event or transaction as an extraordinary item. CHHS has to decide whether the earthquake meets both criteria. Per FASB ASC 225-20-55-2 An event or transaction of a type that occurs frequently in the environment in which the entity operates cannot, by definition, be considered as extraordinary, regardless of its financial effect. On the other hand per FASB ASC 225-20-55-1 stated that unusual nature is not established by the fact that an event or transaction is beyond the control of management. Statistics collected from Northern California Earthquake Data Center (NCEDC) showed that since 1969, there were about 99 earthquakes that shook the true laurel Area with magnitudes of 5 or greater but only 3 have so uttermost been recorded more than 6.7. With these statistics, it may be difficult to validate that earthquakes are infrequent and of a amiable that would not be projected to happen in the foreseeable future. Should we were to report the damage as an extraordinary item it wi ll appear under continuing operations as the net-of-tax of $16.5 million. Per FASB ASC 225-20-50-3 states that The nature and financial effects of each event or transaction that is unusual in nature or occurs infrequently, but not both, shall be disclosed on the face of the income statement or, alternatively, in notes to the financial statements. We can use this statement as our basis to report losses under continuing operations but as separate component according to Accounting Principles Board (APB) Opinion 30 paragraph 26. Under this reporting method, stakeholders and creditors are prone to analyze that there is still a risk that an earthquake will happen again, but the chance is little. Should we report the damage under this option, we would include the full $27.5 million loss as a separate component in continuing operations. Stakeholders and creditors rely on the income statement very much, their decision is dependent on the report we will submit. I am therefore recommending Opt ion 2, that is, to report the earthquake restoration under continuing operations but as a separate income statement component. Our stores are prominently located in the Pacific Ring of Fire, an earthquake-prone area, thus should not be included as extraordinary items. By reporting the earthquake damages as a separate component under continuing operations, we will be following the guidelines prescribed by FASB