Step 1: Understanding the question The question consists data of 20 years of the company. It also shows net income before extraordinary incomes. We need to comment upon the earnings strategies Step 2: Earnings strategy Income smoothing is a strategy adopted by management to reduce the fluctuations in earnings and to portray a company as if it has steady earnings Based on the data given, the company has applied Income Smoothing Strategy over the period to maintain record of earnings growth Step 3: Comments on earnings record The profit data shown indicate a steady business with a steady flow of income. Also capacity is increased over the period since there are also increments in profits Step 4: Good years and bad years In good years, the company records huge cost along with gauged in future misfortunes In bad years, the company records cost at lower end Step 5: Hidden reserves In years 2, 6, 11, 16, 17, 18. 19, 20, the organization made secret reserves by perceiving bigger provisions for mishaps. In these years, the extent of growth in income is significantly higher as compared to previous years

Step 1: Understanding the question The question consists data of 20 years of the company. It also shows net income before extraordinary incomes. We need to comment upon the earnings strategies Step 2: Earnings strategy Income smoothing is a strategy adopted by management to reduce the fluctuations in earnings and to portray a company as if it has steady earnings Based on the data given, the company has applied Income Smoothing Strategy over the period to maintain record of earnings growth Step 3: Comments on earnings record The profit data shown indicate a steady business with a steady flow of income. Also capacity is increased over the period since there are also increments in profits Step 4: Good years and bad years In good years, the company records huge cost along with gauged in future misfortunes In bad years, the company records cost at lower end Step 5: Hidden reserves In years 2, 6, 11, 16, 17, 18. 19, 20, the organization made secret reserves by perceiving bigger provisions for mishaps. In these years, the extent of growth in income is significantly higher as compared to previous years

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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