Wednesday, 24 September 2014

Story of Different Incomes

Let say Moonitez opens a burger production factory. He is a smart guy. He wants to earn income as much as possible. Therefore, beside selling the burger he manufactures, he rents the extra space of his factory to other people to earn some incomes. Besides that , he uses the extra cash to make investment. He even sells off his sausage production section to earn one time profit.

At the end of the year, Moonitez has earned

  •  RM1000 for selling the burger (RM1*1000)
  •  RM200 for renting the space of factory.
  •  RM500 for investment
  •  RM2000 for selling his sausage production section.
  •  RM100 for foreign exchange rate gain

Here the problems come, how should Moonitez record his income in Income Statement?

  • Selling burger is the main operation. So the RM1000 for selling burger should be recorded in Revenue.
  • Renting space of factory considered a part of operating activities but not the main. So the RM200 of renting space of factory should be recorded in other operating incomes.
  • Gain from investment in not operating income. So the RM500 earned from investment should be recorded in financial income (Non-operating Income)
  • Selling sausage production line is one time profit. So RM2000 will be recorded in net profit from discontinued activities.
  • Foreign Exchange Rate is often recorded away from the normal annual Income Statement to ease the process of addition/deduction every year. RM100 for foreign exchange rate should be recorded in Other Comprehensive Income.

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