In 1993, Procter & Gamble Company made an accounting method change that decreased 1993 net income by
Question:
In 1993, Procter & Gamble Company made an accounting method change that decreased 1993 net income by a total of $925 million. The net income dollar amounts reported by the company for 1992, 1993, and 1994 follow (dollars in millions). 1992 $1,872 1993 $ (656) 1994 $2,211 REQUIRED:
a. Recalculate net income for 1993 assuming that the accounting changes had not been made. Which is the more appropriate comparison, the reported amounts or the recalculated amounts? Why?
b. In what three places in Procter & Gamble’s financial report would an investor be able to - find a reference to this accounting change?
c. In 1993, Procter & Gamble also chose to make a discretionary $2.7 billion write-down. Comment on the reporting strategy apparently being used by Procter & Gamble in 1993.
d. General Electric (GE) depreciates its fixed assets using a method that recognizes a rela¬ tively large portion of depreciation in the early years of an asset’s useful life. IBM, on the other hand, uses the straight-line method. Briefly describe the adjustments an investor would have to make when comparing GE’s performance and financial position to that of IBM.
e. Explain the difference between consistency and uniformity in terms of the accounting changes made by Procter & Gamble and the methods of accounting for fixed assets used by GE and IBM.
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