Financial Reporting Problem The Procter & Gamble Company (p&g) Instructions: Use

Question

Financial Reporting Problem The Procter & Gamble Company (p&g) Instructions: Use P&G's 2015 financial statements and the accompanying notes to answer the following questions. (a). Give two examples of where historical cost information is reported in P&G's financial statements. Give two examples of the use of fair value information reported in either the financial statements or related notes. (b). What is P&G's accounting policy related to advertising? What accounting principle does P&G follow regarding accounting for advertising? Where are advertising expenses reported in the financial statements? (c). How can we determine that the accounting principles used by P&G are prepared on a basis consistent with those of last year?

You can find P&G annual reports by going to P&G website: www.pg.com:

Click “investors” Financial Reporting Annual Reports

- Please use 2015 Annual Report (PDF) to answer all the questions.

- Please do NOT simply copy and paste paragraphs from the annual report as your answer. Use your own words to interpret the information you identify, and relate your answer to our course materials as much as you can. This guideline applies to all annual report questions in this project.

Explanation / Answer

Answer:(a) Historical cost information is reported is on P&G’s balance sheet. P&G records their property, plant, and equipment at cost less the depreciation. P&G’s acquisition of grooming is also listed historically. This amount is also listed at cost. P&G’s cash equivalents and short-term debt are good examples of fair value information. These both are recorded at cost.

Answer:(b) If P&G were to change their accounting principles they would have to say so in their financial statement,, more than likely they would have a section specified to this matter. P&G stated under the “New Accounting Pronouncement and Polices” section that the FASB would eliminate components of OCI as part of the statement of shareholders’ equity effective July 1,2012. They state it will impact their financial statement presentation but not the results of operations, cash flows or financial condition.

Answer:(c) P&G’s accounting policy related to advertising is that advertising costs are expensed as they are incurred. The accounting principle that P&G follows is the expense recognition principle. Advertising expenses are reported on the income statement.Advertising costs are expensed as they are incurred into Selling, General and Administrative Expenses.Non-advertising related components of the Company's total marketing spending include costs associated with consumer promotions, product sampling and sales aids, which are included in SG&A, as well as coupons and customer trade funds, which are recorded as reductions to net sales."

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