III. What meaning have the following word combinations?

Accounting income, holding gain, holding loss, net monetary assets, net assets, monetary measures, replacement cost, replacement cost of assets, wholesale value, market value of assets, inventory, purchase price.

IV. Complete each sentence with a phrase from the box.

replacement cost, holding losses, monetary measures, cash flows, holding gains,

1. Accounting income does not include all holding gains and … of a company.

2. Introduction of a successful new product increases, the company’s anticipated future…

3. As a rule accounting reports confuse… with the underlying realities when the prices of goods have been changing rapidly.

4. … should not be classified as ordinary income.

5. The difference between the LIFO inventory cost and the … at the end of the year is unrealized holding gain.

V. Make the pairs of synonyms.

gains losses claim revenue purchase measure report

contend increases decreases buy statement income estimate

Make up your own sentences using these words.

VI. Read the text and describe the event called a gain. Gains

Gains are defined as the increase in net worth¹ from “peripheral² or incidental” transactions. In other words, businesses have a gain if owners’ equity increases as the result of any earnings process not considered as revenue.

An event classified as a gain by one company might be considered revenue for another. For instance, although Fly-away would report the truck sale on its income statement as a gain, General Motors Company would report the sale of trucks as revenue because selling trucks is one of the primary means by which GM generates³ income.

Gains, like revenues, are recognized when they are earned and realized. However, gains are generally not thought of as “earned” in the same sense as revenues. For example, if Boeing purchased a piece of land in 1995 for $10, 000 and sold it five years later for $15, 000, it would recognize a $5, 000 gain in 2000, the year of the sale. Although this gain was “earned”, in the sense that Boeing made an intelligent investment that paid off, the company did not have to perform any activity, other than waiting for the land to increase in value. When accounting for gains, recognition is based primarily on when they are realized.

NOTES

1. net worth – a) стоимость имущества за вычетом обязательств,

б) собственный капитал предприятия

2. peripheral – частный, второстепенный

3. generate – производить

VII. Using the information from the texts

1. Explain what is meant by the terms “gain” and “revenue”.

2. Distinguish between gain and revenue.

3. When are gains and revenues recognized?

VIII. Discussion.

For each of the following situations, determine if the event described is a revenue, a gain, or neither. Explain your choice.

a) Suntaug Books sold an encyclopedia to Children’s Learning Center on account. Payment was not received at the moment.

b) The Milky Way dairy farm sold a delivery truck for an amount exceeding the value of the truck.

c) Richard Shapiro, an attorney, received $10 000 from a client for services to be performed next week.