classification and interpreting income statements 564054

Classification and interpreting income statements. SeaBreeze Inc., a Taiwan based semiconductor manufacturer, reported the following information for 2008. SeaBreeze Inc. applies IFRS and reports in millions of yuan (¥).

Further information available to you reveals the following five items (all financial figures reported in millions of yuan).

a. During 2008 SeaBreeze had ¥$10,000 in gains on sales of assets. The firm included the gains as part of Revenues.

b. SeaBreeze included financial income of ¥$25,800 as part of Revenues, and financial expenses of ¥$12,000 as part of Cost of Sales.

c. The firm included a ¥$6,000 write down of inventory in Selling, General, and Administrative Expenses. Normally in this industry, such a write down is included in Cost of Sales.

d. The firm included research and development expenditures of ¥$34,000 in Cost of Sales. None of the expenditures related to proven technologies (and so were correctly not capitalized).

e. During 2008 the firm committed to a plan to discontinue part of its operations. The discontinued operations accounted for ¥$22,000 of gross profit.

Evaluate the way SeaBreeze classified each of the five items on its income statement. If you disagree with the classification, state your reasoning and determine the effect on the firm’s gross margin and net income from the alternative classification that you would recommend.