Question

Firm A and Firm B, both listed automobile manufacturers in mainland China, have the adapted income statement below for year 2019: In million RMB A B Sales 1,085 646 --COGS (825) (540) Gross Profit 260 106 --Selling expenses (48) (26) --Administration expenses (26) (15) --Research and development (30) (12) --Other operating expenses (20) (12) Operating Profit 136 51 --FV method - 5 --Equity method for associates 7 18 --Gain from lawsuit settlement 10 --Interest revenue 2 3 --Interest expenses (5) (2) Pretax income 140 85 Minus: tax expense (35) (21) Net Income 105 64 Additional information: for both firm A and firm B, all research and development expenditures are expensed immediately. Required: Based on the information in the above table, evaluate the quality of earnings of the two firms for year 2019.

          Firm A and Firm B, both listed automobile manufacturers in mainland China, have the adapted
income statement below for year 2019:
In million RMB
A
B
Sales
1,085
646
--COGS
(825)
(540)
Gross Profit
260
106
--Selling expenses
(48)
(26)
--Administration expenses
(26)
(15)
--Research and development
(30)
(12)
--Other operating expenses
(20)
(12)
Operating Profit
136
51
--FV method
-
5
--Equity method for associates
7
18
--Gain from lawsuit settlement
10
--Interest revenue
2
3
--Interest expenses
(5)
(2)
Pretax income
140
85
Minus: tax expense
(35)
(21)
Net Income
105
64
Additional information: for both firm A and firm B, all research and development expenditures
are expensed immediately.
Required:
Based on the information in the above table, evaluate the quality of earnings of the two firms
for year 2019.

Firm A and Firm B, both listed automobile manufacturers in mainland China, have the adapted
income statement below for year 2019:
In million RMB
A
B
Sales
1,085
646
–COGS
(825)
(540)
Gross Profit
260
106
–Selling expenses
(48)
(26)
–Administration expenses
(26)
(15)
–Research and development
(30)
(12)
–Other operating expenses
(20)
(12)
Operating Profit
136
51
–FV method
-
5
–Equity method for associates
7
18
–Gain from lawsuit settlement
10
–Interest revenue
2
3
–Interest expenses
(5)
(2)
Pretax income
140
85
Minus: tax expense
(35)
(21)
Net Income
105
64
Additional information: for both firm A and firm B, all research and development expenditures
are expensed immediately.
Required:
Based on the information in the above table, evaluate the quality of earnings of the two firms
for year 2019.

Added by James G.

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