Instructions Refer to P&G\'s 2015 financial statements and the accompanying note
ID: 2445043 • Letter: I
Question
Instructions Refer to P&G's 2015 financial statements and the accompanying notes to answer the following questions. (a) What type of income statement format does P&G use? Please discuss the advantages or disadvantages of using this format to present income statement information. (b) What are P&G's primary revenue sources? (hint: in addition to financial statements, you can also look into Management Discussion and Analysis (MD&A)). (c) Compute P&G's gross profit for each of the years 2013–2015. Explain why gross profit decreased in 2015. (d) Identify the irregular items, if any, reported by P&G in its 2015 income statement. Do these irregular items, if any, appear to be significant?
Explanation / Answer
Answer:(a) P&G uses the multiple-step income statement because it separates operating from non operating activities. A multiple-step income statement is used to recognize additional relationships related to revenue and expenses. P&G recognizes a separation of operating transaction from non operating transactions. As a result, trends in income from continuing operations should be easier to understand and analyze. Disclosure of operating income may assist in comparing different companies and assessing operating efficiencies.
Answer:(b) P&G operates in the consumer product market.The company separates its operations into six global segments:(Sale by segment)
Fabric and home care, 30%
Beauty,24%
Baby and family care,19%
Health care,14%
Snacks and pet care,4%
Grooming,9%
Answer:(c) Gross profit=(GP/Net sales )*100
2013=(40125/80116)*100=50.08%
2014=(39500/80510)*100=49.06%
2015=(37403/76279)*100=49.03%