Comprehensive Income Overview
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Questions and Answers

What is the first item presented in the notes according to the order specified?

  • Summary of significant accounting policies used
  • Other disclosures
  • Supporting information or computation for line items
  • Statement of compliance with PFRS (correct)

    • In the statement of changes in equity, how is a change in accounting policy presented?

  • Separately for the total amount attributable to owners of parent and noncontrolling interest
  • In total for the amount attributable to owners of the parent and noncontrolling interest
  • Separately for each component of equity (correct)
  • In aggregate for total equity

    • Which item does not appear in the statement of retained earnings?

  • Preference share dividend
  • Net loss
  • Prior period error
  • Other comprehensive income (correct)

    • What information is included in retained earnings when correcting prior period errors?

    <p>Retained earnings</p> Signup and view all the answers

    Which item appears first in the statement of retained earnings?

    <p>Prior period error</p> Signup and view all the answers

    What is a limitation of the income statement?

    <p>Items that can be measured reliably are reported in net income</p> Signup and view all the answers

    In presenting the effect of a correction of a prior period error in the statement of changes in equity, how is it categorized?

    <p>Separately for each component of equity</p> Signup and view all the answers

    Which of the following is least likely to utilize an income statement?

    <p>Determining cash flow from operations</p> Signup and view all the answers

    What is the primary purpose of reporting comprehensive income?

    <p>To provide a better measure than net income</p> Signup and view all the answers

    Which of the following is NOT an acceptable method for reporting other comprehensive income?

    <p>In a statement of changes in equity</p> Signup and view all the answers

    When comprehensive income is reported, it should be visible as itself to maintain prominence. How should it be displayed?

    <p>With the same prominence as other financial statements</p> Signup and view all the answers

    What is the purpose of a reclassification adjustment when reporting other comprehensive income?

    <p>To avoid double counting of items</p> Signup and view all the answers

    Which of the following is NOT considered a component of other comprehensive income (OCI)?

    <p>Dividend paid to shareholders</p> Signup and view all the answers

    Which option is NOT classified as a component of other comprehensive income?

    <p>Unrealized gain on financial asset held for trading</p> Signup and view all the answers

    Which component is NOT included in other comprehensive income?

    <p>Treasury shares at cost</p> Signup and view all the answers

    What is the preferred method for displaying other comprehensive income?

    <p>A separate statement that begins with net income</p> Signup and view all the answers

    What primarily helps determine an entity's ability to provide needed goods and services?

    <p>Income statement</p> Signup and view all the answers

    What does net income equal?

    <p>Revenue minus expenses</p> Signup and view all the answers

    Comprehensive income could be described as which of the following?

    <p>Could be greater than or less than net income</p> Signup and view all the answers

    What information is typically provided by the income statement?

    <p>Liquidity assessment</p> Signup and view all the answers

    Which of the following is NOT a use of income statement information for investors and creditors?

    <p>Determining tax liabilities</p> Signup and view all the answers

    What does 'gains' refer to in financial terms?

    <p>Increases in equity from peripheral transactions</p> Signup and view all the answers

    Which calculation would be used to assess the financial position of an entity?

    <p>Total debt to equity ratio</p> Signup and view all the answers

    What is the change in equity from nonowner sources known as?

    <p>Comprehensive income</p> Signup and view all the answers

    Which of the following is not a required minimum disclosure about related party transactions?

    <p>Doubtful debt related to the outstanding balance</p> Signup and view all the answers

    Which transaction does not qualify as a related party transaction?

    <p>Transferred goods from inventory to a subsidiary</p> Signup and view all the answers

    Which of the following parties is not considered a related party?

    <p>An independent contractor providing services</p> Signup and view all the answers

    What defines a related party transaction?

    <p>A transfer between related parties, regardless of whether a price is charged</p> Signup and view all the answers

    Which of the following does not qualify as an unrelated party?

    <p>A single customer with a significant volume of business</p> Signup and view all the answers

    Close family members of an individual do not typically include which of the following?

    <p>Cousins of the individual</p> Signup and view all the answers

    Which entity is typically not required to produce financial statements readily available for public use?

    <p>A joint venture</p> Signup and view all the answers

    Which of the following is considered a typical related party transaction?

    <p>Offering goods at discounted prices to the managing director’s spouse</p> Signup and view all the answers

    Which of the following is not a minimum disclosure requirement for related party transactions?

    <p>Allowance for doubtful accounts related to the outstanding balance</p> Signup and view all the answers

    Which statement correctly describes the disclosure requirements for notes to financial statements under IFRS?

    <p>IFRS mandates that all notes be straightforward and devoid of technical jargon.</p> Signup and view all the answers

    What best describes the standard for adequate disclosure?

    <p>Disclosure must allow a prospective investor to make an informed decision.</p> Signup and view all the answers

    Which accounting policy related to inventory must be disclosed in the summary of significant accounting policies?

    <p>Composition of inventory into raw materials, goods in process, and finished goods</p> Signup and view all the answers

    Which method of information disclosure is NOT recognized?

    <p>Indexing financial indices</p> Signup and view all the answers

    An asset is classified as held for sale when which condition is met?

    <p>The carrying amount is recovered through a planned sale transaction.</p> Signup and view all the answers

    Which of the following is a requirement when applying the full disclosure principle?

    <p>Important financial information should not be buried in the notes.</p> Signup and view all the answers

    Which of the following disclosures is specifically required regarding the nature of related party transactions?

    <p>The relationship type between parties involved in the transaction.</p> Signup and view all the answers

    Study Notes

    Comprehensive Income

    • Reports transactions with owners.
    • Reports net income over the entity's performance.
    • Combines income from continuing operations with income from discontinued operations.
    • Can be presented in a separate statement of comprehensive income, a single statement of comprehensive income, the notes to the financial statements, or in a statement of changes in equity.

    Other Comprehensive Income

    • Not an acceptable reporting option for OCI: reporting it in a separate statement of changes in equity.
    • Items of comprehensive income are reported net of related income tax effects, in total and individually.
    • Reclassification adjustments are used to avoid double counting of items.

    Components of Other Comprehensive Income

    • Included in OCI:

      • Unrealized gain on derivative contract designated as a cash flow hedge.
      • Loss from translating the financial statements of a foreign operation.
      • Actuarial gain on a defined benefit plan.

    • Excluded from OCI:

      • Dividend paid to shareholders.
      • Unrealized gain on financial assets held for trading.
      • Loss on derivative designated as a cash flow hedge.
      • Treasury shares at cost.
      • Change in revaluation surplus.

    Presentation of Other Comprehensive Income

    • The preferred option for displaying other comprehensive income is a continuation from net income in the income statement or a separate statement that begins with net income.

    Notes to Financial Statements

    • The notes are normally presented in the following order:
      • Statement of compliance with PFRS.
      • Summary of significant accounting policies used.
      • Supporting information or computation for line items presented in the financial statements.
      • Other disclosures, such as contingent liabilities, unrecognized contractual commitments, and nonfinancial disclosures.

    Statement of Changes in Equity

    • The effect of a change in accounting policy and the correction of a prior period error is presented separately for each component of equity.
    • The statement of changes in retained earnings does not display other comprehensive income.
    • Prior period error is included in retained earnings.
    • Prior period errors are included in the statement of retained earnings before net income.

    Income Statement

    • The income statement does not focus on the financial position of the entity.
    • The income statement aids in estimating the amount, timing, and uncertainty of future cash flows.
    • Income statement information is used to help assess the risk and uncertainty of achieving future cash flows.
    • Income determination is arrived at by using a transaction approach.
    • Not an acceptable reporting option for OCI: reporting it in a separate statement of changes in equity.

    Gains and Losses

    • Gains are increases in equity from peripheral transactions.
    • Gains are not inflows from selling a product to a customer.
    • Gains are not increases in equity resulting from transfers of assets to the entity from owners.
    • Change in equity from nonowner sources is comprehensive income rather than a gain or loss.

    • Related parties are all of the following except two joint venturers simply because they share joint control over a joint venture.

    • A related party transaction is a transfer between related parties, regardless of whether a price is charged.

    • Unrelated parties include providers of finance in the normal course of business, government agencies, and single customers with a significant volume of business.

    • Related party transactions include:

      • A venturer selling goods to the joint venture.
      • Selling a car to the uncle of the entity's finance director.
      • Selling goods to another entity owned by the daughter of the managing director.
      • Transferring goods from inventory to a subsidiary.
      • Selling an entity car to the wife of the managing director.
      • Selling an asset to an associate.

    • Unrelated party transitions:

      • Taking out a large bank loan.

    • Minimum disclosures about related party transactions do not include the nature of the relationship.

    • Minimum disclosures about related party transactions include:

      • The amount of the transaction.
      • Amount of outstanding balance.
      • Allowance for doubtful accounts related to the outstanding balance.

    Disclosure Principles

    • IFRS requires specific note disclosures; the notes are required to be clear, simple to understand, and nontechnical in nature. IFRS does not require a maturity analysis for receivables.
    • The standard of adequate disclosure is best described by disclosing enough information so that a prospective investor can make a wise decision.
    • The full disclosure principle is demonstrated by the use of supplementary information presenting the effects of changing prices.
    • An inventory accounting policy that should be disclosed in a summary of significant accounting policies is the method used for pricing inventory.
    • Methods of disclosing relevant information include supporting schedules, parenthetical explanations, and cross-references.

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    Description

    This quiz focuses on understanding comprehensive income and other comprehensive income as per financial reporting standards. It covers the reporting of transactions with owners, net income performance, and components of other comprehensive income. Ideal for finance students or professionals looking to solidify their knowledge in this area.

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