Podcast
Questions and Answers
What is the primary role of the reported profit or loss (P/L) figure for a business entity?
What is the primary role of the reported profit or loss (P/L) figure for a business entity?
- To calculate the entity's market capitalization.
- To assess the entity's compliance with regulatory requirements.
- To determine the entity's tax liability.
- To indicate the business entity's financial performance. (correct)
Total comprehensive income is calculated by combining which two components?
Total comprehensive income is calculated by combining which two components?
- Assets and liabilities.
- Profit or loss and other comprehensive income (OCI). (correct)
- Revenue and expenses.
- Equity and dividends.
According to IAS 1, what are the acceptable formats for presenting profit or loss and other comprehensive income?
According to IAS 1, what are the acceptable formats for presenting profit or loss and other comprehensive income?
- A single statement of profit or loss only.
- A statement of financial position and a statement of cash flows.
- A statement of profit or loss and a separate statement of changes in equity.
- Either a single statement of profit or loss and other comprehensive income, or two separate statements. (correct)
Which accounting standard addresses the determination of profit or loss and related disclosures?
Which accounting standard addresses the determination of profit or loss and related disclosures?
Which of the following must be included in a complete set of financial statements, according to IAS 1?
Which of the following must be included in a complete set of financial statements, according to IAS 1?
If an entity chooses to present two statements for comprehensive income, what is the correct order of presentation?
If an entity chooses to present two statements for comprehensive income, what is the correct order of presentation?
Where can information about items to be included in the profit or loss section of the statement be found?
Where can information about items to be included in the profit or loss section of the statement be found?
Which paragraphs in IAS 1 specifically discuss other comprehensive income for the period?
Which paragraphs in IAS 1 specifically discuss other comprehensive income for the period?
According to IAS 1, which of the following transactions are directly reflected in the statement of changes in equity, rather than the statement of profit or loss and other comprehensive income?
According to IAS 1, which of the following transactions are directly reflected in the statement of changes in equity, rather than the statement of profit or loss and other comprehensive income?
Under IAS 1, what are the two options available to an entity for presenting profit or loss and other comprehensive income?
Under IAS 1, what are the two options available to an entity for presenting profit or loss and other comprehensive income?
In the single-statement approach for presenting profit or loss and OCI, what are the mandatory components to be presented?
In the single-statement approach for presenting profit or loss and OCI, what are the mandatory components to be presented?
Which of the following best describes the calculation of total comprehensive income?
Which of the following best describes the calculation of total comprehensive income?
When presenting a consolidated statement of profit or loss and OCI, how should the consolidated profit or loss and comprehensive income be allocated?
When presenting a consolidated statement of profit or loss and OCI, how should the consolidated profit or loss and comprehensive income be allocated?
What is the starting point for the statement of comprehensive income in the two-statement approach?
What is the starting point for the statement of comprehensive income in the two-statement approach?
In the context of the two-statement approach for profit or loss and OCI, which statement discloses the allocation of consolidated profit or loss between non-controlling interests and the parent entity’s owners?
In the context of the two-statement approach for profit or loss and OCI, which statement discloses the allocation of consolidated profit or loss between non-controlling interests and the parent entity’s owners?
Where would a revaluation surplus relating to property, plant and equipment be reported?
Where would a revaluation surplus relating to property, plant and equipment be reported?
Which of the following items is least likely to be presented within 'Other Comprehensive Income'?
Which of the following items is least likely to be presented within 'Other Comprehensive Income'?
When preparing consolidated financial statements, what needs to be allocated between the parent entity's owners and non-controlling interests?
When preparing consolidated financial statements, what needs to be allocated between the parent entity's owners and non-controlling interests?
According to IAS 1, which of the following is a permissible approach for presenting profit or loss and other comprehensive income (OCI)?
According to IAS 1, which of the following is a permissible approach for presenting profit or loss and other comprehensive income (OCI)?
What is the most accurate description of 'other comprehensive income' (OCI)?
What is the most accurate description of 'other comprehensive income' (OCI)?
Which of the following items is least likely to be classified as 'other comprehensive income' (OCI)?
Which of the following items is least likely to be classified as 'other comprehensive income' (OCI)?
Under a single-statement approach for profit or loss and other comprehensive income (OCI), what separate totals are specifically required to be presented?
Under a single-statement approach for profit or loss and other comprehensive income (OCI), what separate totals are specifically required to be presented?
Which of the following best describes the key difference between the single-statement and two-statement approaches for presenting profit or loss and other comprehensive income (OCI)?
Which of the following best describes the key difference between the single-statement and two-statement approaches for presenting profit or loss and other comprehensive income (OCI)?
According to IAS 1, what is another acceptable title for the 'statement of profit or loss'?
According to IAS 1, what is another acceptable title for the 'statement of profit or loss'?
Which of the following best describes 'total comprehensive income'?
Which of the following best describes 'total comprehensive income'?
According to IAS 1, which of the following is a component of other comprehensive income?
According to IAS 1, which of the following is a component of other comprehensive income?
Under what circumstance does IAS 1 permit an entity to exclude income and expense items from profit or loss?
Under what circumstance does IAS 1 permit an entity to exclude income and expense items from profit or loss?
How are adjustments for the retrospective application of changes in accounting policies typically reflected in the financial statements?
How are adjustments for the retrospective application of changes in accounting policies typically reflected in the financial statements?
According to IAS 16, how should an increase in an asset's carrying amount due to revaluation be handled if it reverses a previous revaluation decrease?
According to IAS 16, how should an increase in an asset's carrying amount due to revaluation be handled if it reverses a previous revaluation decrease?
According to IAS 1, what is 'profit or loss' defined as?
According to IAS 1, what is 'profit or loss' defined as?
Which of the following is NOT a component of other comprehensive income as listed in the provided text based on IAS 1?
Which of the following is NOT a component of other comprehensive income as listed in the provided text based on IAS 1?
Which accounting standard addresses the revaluation of property, plant, and equipment, potentially leading to items in other comprehensive income?
Which accounting standard addresses the revaluation of property, plant, and equipment, potentially leading to items in other comprehensive income?
Under which circumstance an entity recognizes retrospectively, items outside the profit or loss of the current period?
Under which circumstance an entity recognizes retrospectively, items outside the profit or loss of the current period?
How does remeasuring equity instruments measured at fair value through OCI in accordance with IFRS 9 impact which financial statement?
How does remeasuring equity instruments measured at fair value through OCI in accordance with IFRS 9 impact which financial statement?
When does IAS 1 require all income and expense items to be included in the determination of profit or loss for a reporting period?
When does IAS 1 require all income and expense items to be included in the determination of profit or loss for a reporting period?
What is the primary difference between profit or loss and total comprehensive income?
What is the primary difference between profit or loss and total comprehensive income?
According to IAS 21, gains and losses arising from the translation of financial statements of a foreign operation are reported in which of the following?
According to IAS 21, gains and losses arising from the translation of financial statements of a foreign operation are reported in which of the following?
According to IAS 1, which of the following is a required line item to be presented separately in the statement of profit or loss?
According to IAS 1, which of the following is a required line item to be presented separately in the statement of profit or loss?
Which of the following best describes the 'nature of expense' classification?
Which of the following best describes the 'nature of expense' classification?
What information must an entity disclose in the notes when classifying expenses by function?
What information must an entity disclose in the notes when classifying expenses by function?
According to IAS 1, what should an entity do with material items of income and expense?
According to IAS 1, what should an entity do with material items of income and expense?
Which of the following is an example of an expense classified by function?
Which of the following is an example of an expense classified by function?
IAS 1 specifically prohibits the presentation of which items in the statement(s) presenting profit or loss?
IAS 1 specifically prohibits the presentation of which items in the statement(s) presenting profit or loss?
The choice between classifying expenses by nature versus by function should be based on:
The choice between classifying expenses by nature versus by function should be based on:
Under IFRS standards, which of the following items related to financial assets must be presented as part of the profit or loss?
Under IFRS standards, which of the following items related to financial assets must be presented as part of the profit or loss?
When employee benefit expenses are classified based on the function of the expense, how would they be presented?
When employee benefit expenses are classified based on the function of the expense, how would they be presented?
If a financial asset is reclassified out of the amortized cost measurement category so that it is measured at fair value through profit or loss, what is the accounting treatment for any resulting gain or loss?
If a financial asset is reclassified out of the amortized cost measurement category so that it is measured at fair value through profit or loss, what is the accounting treatment for any resulting gain or loss?
Which of the following must be presented separately as revenue?
Which of the following must be presented separately as revenue?
What is the primary purpose of requiring separate disclosure of material income and expense items under IAS 1?
What is the primary purpose of requiring separate disclosure of material income and expense items under IAS 1?
An entity changed its accounting policy regarding revenue recognition. How should this change be presented?
An entity changed its accounting policy regarding revenue recognition. How should this change be presented?
Impairment losses determined in accordance with Section 5.5 of IFRS 9, should be accounted for as:
Impairment losses determined in accordance with Section 5.5 of IFRS 9, should be accounted for as:
According to IAS 1, what is the required presentation of discontinued operations?
According to IAS 1, what is the required presentation of discontinued operations?
According to IAS 1, which factor(s) should be considered when determining the materiality of income or expense?
According to IAS 1, which factor(s) should be considered when determining the materiality of income or expense?
Which of the following is an example of an item that requires separate disclosure as a material item of income or expense, according to IAS 1?
Which of the following is an example of an item that requires separate disclosure as a material item of income or expense, according to IAS 1?
How does IAS 1 require items of Other Comprehensive Income (OCI) to be classified?
How does IAS 1 require items of Other Comprehensive Income (OCI) to be classified?
Which of the following is an example of an item of OCI that is subsequently reclassified to profit or loss?
Which of the following is an example of an item of OCI that is subsequently reclassified to profit or loss?
According to IAS 16, what happens to the cumulative amount of revaluation gains in the revaluation surplus when a revalued plant asset is disposed of?
According to IAS 16, what happens to the cumulative amount of revaluation gains in the revaluation surplus when a revalued plant asset is disposed of?
According to IAS 1, where can an entity disclose the amount of income tax relating to each item of comprehensive income?
According to IAS 1, where can an entity disclose the amount of income tax relating to each item of comprehensive income?
When using the 'before tax' approach for presenting items of OCI, how must income tax be allocated in the financial statement?
When using the 'before tax' approach for presenting items of OCI, how must income tax be allocated in the financial statement?
According to IAS 1, what is the purpose of reclassification adjustments related to components of other comprehensive income?
According to IAS 1, what is the purpose of reclassification adjustments related to components of other comprehensive income?
Where are the net profit after income tax figure and the other comprehensive income figures ultimately transferred to?
Where are the net profit after income tax figure and the other comprehensive income figures ultimately transferred to?
Which of the following statements is correct regarding the presentation of items of OCI?
Which of the following statements is correct regarding the presentation of items of OCI?
According to IAS 1, what information must be separately presented for associates and joint ventures accounted for using the equity method in relation to OCI?
According to IAS 1, what information must be separately presented for associates and joint ventures accounted for using the equity method in relation to OCI?
Where can reclassification adjustments be presented?
Where can reclassification adjustments be presented?
Which is not a example of circumstances that would give rise to separate disclosures of material items of income and expense?
Which is not a example of circumstances that would give rise to separate disclosures of material items of income and expense?
An item of plant on hand is revalued above its cost-based amount, and a gain is recognised in OCI and accumulated in equity in the revaluation surplus. When that plant is disposed of, can that amount accumulated be reclassified to profit or loss?
An item of plant on hand is revalued above its cost-based amount, and a gain is recognised in OCI and accumulated in equity in the revaluation surplus. When that plant is disposed of, can that amount accumulated be reclassified to profit or loss?
An entity has unrealised losses previously recognised in OCI, and subsequently reclassified as a realised losses in profit or loss. What action is advised?
An entity has unrealised losses previously recognised in OCI, and subsequently reclassified as a realised losses in profit or loss. What action is advised?
According to IAS 1, which of the following items is not required to be separately disclosed in relation to profit or loss?
According to IAS 1, which of the following items is not required to be separately disclosed in relation to profit or loss?
Under IAS 1, what are the two acceptable approaches for disclosing income tax related to components of Other Comprehensive Income (OCI)?
Under IAS 1, what are the two acceptable approaches for disclosing income tax related to components of Other Comprehensive Income (OCI)?
An entity revalues its land and buildings. Where in the financial statements would the revaluation surplus (increase) or deficit (decrease) be ultimately recorded?
An entity revalues its land and buildings. Where in the financial statements would the revaluation surplus (increase) or deficit (decrease) be ultimately recorded?
When a company disposes of an investment in a foreign operation, how are the accumulated foreign currency translation differences treated?
When a company disposes of an investment in a foreign operation, how are the accumulated foreign currency translation differences treated?
Which of the following is the primary purpose of the statement of profit or loss and other comprehensive income?
Which of the following is the primary purpose of the statement of profit or loss and other comprehensive income?
When analyzing the statement of profit or loss and other comprehensive income, what should analysts review to understand significant changes in the entity's financial performance?
When analyzing the statement of profit or loss and other comprehensive income, what should analysts review to understand significant changes in the entity's financial performance?
According to IAS 1, how can expenses be classified in the statement of profit or loss?
According to IAS 1, how can expenses be classified in the statement of profit or loss?
Under IAS 1, what information about items of other comprehensive income (OCI) must be separately disclosed?
Under IAS 1, what information about items of other comprehensive income (OCI) must be separately disclosed?
When analyzing the statement of Profit or Loss and OCI, which of the following would indicate the need for further investigation?
When analyzing the statement of Profit or Loss and OCI, which of the following would indicate the need for further investigation?
An entity uses the ‘net of tax’ approach to disclose income tax relating to components of OCI. If a revaluation surplus is $100,000 and the related tax is $25,000, what amount is presented in OCI?
An entity uses the ‘net of tax’ approach to disclose income tax relating to components of OCI. If a revaluation surplus is $100,000 and the related tax is $25,000, what amount is presented in OCI?
Which of the following best describes a 'reclassification adjustment' in the context of OCI?
Which of the following best describes a 'reclassification adjustment' in the context of OCI?
Where would foreign exchange gains or losses arising from the translation of a foreign operation's financial statements typically be found?
Where would foreign exchange gains or losses arising from the translation of a foreign operation's financial statements typically be found?
An entity experiences a significant decrease in total revenue compared to the previous reporting period. According to the guidance provided, what should an analyst do to understand the reasons for this decrease?
An entity experiences a significant decrease in total revenue compared to the previous reporting period. According to the guidance provided, what should an analyst do to understand the reasons for this decrease?
Which section of the financial statements would directly show the impact of unrealized gains and losses on equity, other than contributions or withdrawals by owners?
Which section of the financial statements would directly show the impact of unrealized gains and losses on equity, other than contributions or withdrawals by owners?
An entity has revalued an asset upwards. Where is this revaluation initially recognised?
An entity has revalued an asset upwards. Where is this revaluation initially recognised?
Flashcards
Comprehensive Income
Comprehensive Income
Total comprehensive income is the sum of profit or loss and other comprehensive income (OCI) for a period.
Profit or Loss (P/L)
Profit or Loss (P/L)
The net earnings of a business entity, calculated as revenues minus expenses.
Other Comprehensive Income (OCI)
Other Comprehensive Income (OCI)
Income that isn't included in profit or loss; includes unrealized gains and losses.
IAS 1
IAS 1
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Single Statement Option
Single Statement Option
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Two Statements Option
Two Statements Option
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Complete Set of Financial Statements
Complete Set of Financial Statements
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Profit for the Period
Profit for the Period
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Changes in Equity
Changes in Equity
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Statement of P/L and OCI
Statement of P/L and OCI
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Single Statement Approach
Single Statement Approach
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Total Comprehensive Income
Total Comprehensive Income
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Two Statements Approach
Two Statements Approach
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Profit or Loss Allocation
Profit or Loss Allocation
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Comprehensive Income for the Period
Comprehensive Income for the Period
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IAS 1 Requirements
IAS 1 Requirements
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Consolidated Financial Statements
Consolidated Financial Statements
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Requirements of IAS 1
Requirements of IAS 1
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Components of OCI
Components of OCI
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Line Items in Financial Statements
Line Items in Financial Statements
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Revenue Presentation
Revenue Presentation
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Effective Interest Method
Effective Interest Method
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Insurance Revenue
Insurance Revenue
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Gains and Losses
Gains and Losses
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Finance Costs
Finance Costs
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Impairment Losses
Impairment Losses
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Reinsurance Contracts
Reinsurance Contracts
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Profit or Loss of Associates
Profit or Loss of Associates
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Tax Expense
Tax Expense
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Discontinued Operations
Discontinued Operations
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Classification of Expenses
Classification of Expenses
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Expenses by Nature
Expenses by Nature
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Expenses by Function
Expenses by Function
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Material Income Items
Material Income Items
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Additional Line Items
Additional Line Items
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Materiality
Materiality
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Write-Downs of Inventories
Write-Downs of Inventories
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Disclosures
Disclosures
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Other Comprehensive Income Presentation
Other Comprehensive Income Presentation
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Gains/Losses Translation
Gains/Losses Translation
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Revaluation Surplus
Revaluation Surplus
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Sharing of OCI
Sharing of OCI
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Classification of OCI
Classification of OCI
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Income Tax on OCI
Income Tax on OCI
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Reclassification Adjustments
Reclassification Adjustments
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Retained Earnings
Retained Earnings
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Nature and Amount of OCI
Nature and Amount of OCI
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Subsequent Reclassification Criteria
Subsequent Reclassification Criteria
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Financial Statements in Two Statements Option
Financial Statements in Two Statements Option
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Profit or Loss
Profit or Loss
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Single Statement of P/L and OCI
Single Statement of P/L and OCI
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Other Comprehensive Income
Other Comprehensive Income
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Retrospective Application
Retrospective Application
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Scope of Other Comprehensive Income
Scope of Other Comprehensive Income
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IFRS
IFRS
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Error Correction
Error Correction
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Components of Comprehensive Income
Components of Comprehensive Income
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Gains and Losses on Foreign Operations
Gains and Losses on Foreign Operations
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Cash Flow Hedge
Cash Flow Hedge
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Equity Instruments
Equity Instruments
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Transactions with Owners
Transactions with Owners
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Reserves Column
Reserves Column
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Foreign Currency Translation Reserve
Foreign Currency Translation Reserve
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OCI Components
OCI Components
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Financial Statement Disclosure
Financial Statement Disclosure
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Expense Classification
Expense Classification
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Profit Result
Profit Result
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Main Drivers
Main Drivers
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Unrealized Gains and Losses
Unrealized Gains and Losses
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Reporting Period
Reporting Period
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Comparative Analysis
Comparative Analysis
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Study Notes
Comprehensive Income Requirements
- IAS 1 outlines the presentation of profit/loss (P/L) and total comprehensive income (TCI), which combines P/L with other comprehensive income (OCI).
- TCI represents the total change in equity during a period, excluding owner transactions.
- P/L is income minus expenses, excluding OCI components.
- OCI encompasses items not included in P/L as per IFRS requirements, such as asset revaluations, defined benefit plan changes, and foreign currency translations.
Statement of P/L and OCI Presentation Options
- Entities can choose between a single statement combining P/L and OCI, or separate statements for P/L and comprehensive income.
- A single statement presents P/L followed by OCI, specifying the totals for P/L, OCI, and TCI.
- Two statements separate P/L and comprehensive income, starting with P/L and then adding OCI components.
Required P/L Statement Line Items
- Revenue, including interest and insurance, is separately presented.
- Gains/losses from financial asset derecognition and insurance expenses are crucial.
- Finance costs, impairment losses, and specific financing income/expense details (IFRS 17-related) are included.
- Share of associates/joint venture profits/losses using the equity method is essential.
- Reclassification gains/losses due to financial asset reclassification are included.
- Tax expense, and discontinued operations totals, are required line items.
- Additional line items, headings, and subtotals are required if necessary for better understanding of financial performance.
- Extraordinary items are prohibited.
Expense Classification
- Expenses can be categorized by nature (what they are) or function (their role in the entity's operations).
- Classification choice depends on which approach provides clearer, more relevant, and dependable information.
- Example nature-based classification: changes in inventory, employee benefits, depreciation/amortisation, other expenses.
- Example function-based classification: cost of sales, distribution, administration expenses, other expenses.
Material Income/Expense Disclosure
- Material income/expense items must be separately disclosed.
- Materiality assessment relies on professional judgment; consideration of nature, magnitude of information, or both.
- Examples of material items requiring separate disclosure: inventory write-downs, property write-downs/reversals, restructuring, disposals of property/investments, discontinued operations, litigation settlements, and provision reversals.
OCI Statement Requirements
- OCI items are classified by their nature, grouped into reclassification to P/L and non-reclassification categories.
- Separate disclosure is required for the share of OCI from associates/joint ventures, categorized similarly.
- OCI components, including revaluation surplus, foreign currency translation, and fair value remeasurements are presented separately.
- Accounting for tax relating to each OCI component is necessary; either net or gross, with aggregated total disclosure possible.
Reclassification Adjustments
- Reclassification adjustments associated with OCI components are disclosed.
- Adjustments are made to avoid double-counting in comprehensive income of current and preceding periods following unrealized gain reclassification.
TCI Transfer to Equity
- Net profit (after tax) and OCI totals are transferred to the equity statement.
- Net profit affects retained earnings.
- OCI items affect reserves (e.g., revaluation surplus, foreign currency translation reserve).
Key Considerations for Financial Statement Analysis
- Review income components for increases/decreases, understanding driving factors.
- Analyze expense components, including classification (nature/function), noting changes from prior periods and material movements.
- Evaluate the profit/loss result and compare with previous periods to understand the performance drivers.
- Examine OCI for notable changes in items like asset revaluations.
- Conclude on the overall entity performance compared to the previous reporting period.
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Description
This quiz explores the requirements and presentation options for profit/loss and total comprehensive income as outlined by IAS 1. Learn about the components of comprehensive income, including other comprehensive income and the presentation choices available to entities. Test your understanding of the line items required in the profit/loss statement.
