Module 2 - 2.8 to 2.14

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Questions and Answers

What are the two sections required in a single statement of profit or loss and other comprehensive income?

Profit or loss and other comprehensive income (correct)

Comprehensive income and equity changes

Total income and total expenses

Profit or loss and total comprehensive income

In the context of IAS 1, what does total comprehensive income represent?

The income generated exclusively from investments

Only the profit or loss for the period

The aggregate of profit or loss and other comprehensive income (correct)

The sum of total profit and total expenses

In the two-statement approach, which line item does the statement of profit or loss end with?

Profit or loss for the period (correct)

Comprehensive income for the period

Total other comprehensive income

Net income before taxes

What must be presented as separate items in a consolidated statement of profit or loss and other comprehensive income?

Allocations of profit or loss and comprehensive income to non-controlling interests and parent entity’s owners Signup and view all the answers

Which of the following statements is true according to IAS 1 regarding the two-statement approach?

The statement of profit or loss is prepared separately from the statement of comprehensive income. Signup and view all the answers

What is the criteria for classifying comprehensive income in IAS 1?

It is the summation of profit or loss and other comprehensive income. Signup and view all the answers

What is typically included in the first section of a single statement of profit or loss and OCI?

Profit or loss Signup and view all the answers

What is the implication of a highly geared entity?

It may have limited ability to borrow additional funds. Signup and view all the answers

When presenting assets and liabilities, what classification is typically required?

Assets and liabilities must be classified as current and non-current. Signup and view all the answers

Under IAS 1, which factor can lead to additional disclosures for financial statements?

The nature, function, and liquidity of assets. Signup and view all the answers

What is required if a liquidity presentation basis is applied?

Assets and liabilities must be presented in order of liquidity. Signup and view all the answers

What does TAS 1 specify about assets and liabilities in financial statements?

They must be classified on a current/non-current basis. Signup and view all the answers

Which time frame can be used to identify current assets and liabilities?

A 12-month period after the reporting period. Signup and view all the answers

Which of the following best describes disclosing subclassifications in financial statements?

Further subclassifications must be disclosed in the notes. Signup and view all the answers

What does IAS 1 require for the statement of financial position?

It specifies minimum disclosure requirements. Signup and view all the answers

Which of the following is NOT a recommended subclassification for inventories?

Current liabilities Signup and view all the answers

What does a decrease in total liabilities generally indicate about an entity?

The entity’s financial position is stabilizing. Signup and view all the answers

Which financial metric is used to assess a company’s liquidity position?

Current ratio Signup and view all the answers

What is disaggregated under equity capital and reserves according to IAS 1?

Retained earnings Signup and view all the answers

Which of the following elements is NOT included when analyzing total assets?

Total liabilities Signup and view all the answers

What does it mean if total equity is positive?

The company is a going concern. Signup and view all the answers

Which of the following disclosures is NOT typically required for inventories?

Details on equity ownership Signup and view all the answers

Which subclassification is listed under the provisions category?

Provisions for employee benefits Signup and view all the answers

What key aspect should be considered when analyzing current assets?

Their liquidity and obsolescence risk Signup and view all the answers

What is the suggested current ratio guideline for assessing liquidity?

2:1 Signup and view all the answers

According to IAS standards, which financial position item requires separate disclosure?

Inventories Signup and view all the answers

Which risk is typically associated with inventories for a retailer?

Obsolescence risk Signup and view all the answers

Which of the following best describes a low gearing position?

Low reliance on debt funding Signup and view all the answers

What must the statement of profit or loss disclose regarding the allocation of consolidated profit or loss?

Amounts for the allocation between non-controlling interests and the parent entity’s owners Signup and view all the answers

What is the key requirement for line items to be disclosed in a profit or loss statement according to IAS 1?

Line items should be relevant to an understanding of financial performance Signup and view all the answers

How should entities classify expenses in the profit or loss statement?

By either the nature of the expenses or their function within the entity Signup and view all the answers

What does TAS 1 prohibit in the presentation of extraordinary items?

Presentation of extraordinary items in the profit or loss statement Signup and view all the answers

Which option correctly represents the classification of expenses by nature?

Employee benefits expense and depreciation expense Signup and view all the answers

In the classification by function, which of the following is considered an appropriate line item?

Administrative expenses Signup and view all the answers

Which income item is not typically included in the profit or loss section according to the requirements listed?

Investment income from other entities Signup and view all the answers

What is the primary focus of paragraph 99 of IAS 1 concerning expenses?

Presenting an analysis of expenses using either nature or function Signup and view all the answers

What must be presented in the statement of profit or loss if the two-statement approach is adopted?

A detailed income statement and a statement of comprehensive income Signup and view all the answers

Which of the following items is required to be disclosed under the single statement of profit or loss and OCI?

Share of profit or loss of associates Signup and view all the answers

What is the definition of reclassification of financial assets in terms of IFRS 9?

Moving a financial asset from one measurement category to another Signup and view all the answers

Which of the following is NOT a required line item in the profit or loss statement according to IAS 1?

Total capital expenditures Signup and view all the answers

Which of the following is a classification of expenses by function?

Cost of sales Signup and view all the answers

What is the term used for aggregating employee benefits as a single line item?

Nature classification Signup and view all the answers

What must be disclosed in the notes when expenses are classified by function?

Nature of expenses Signup and view all the answers

What is meant by the term 'material' in terms of income and expenses?

Items that could influence user decisions Signup and view all the answers

Which of the following would NOT typically be separately disclosed as a material item?

General administrative expenses Signup and view all the answers

What is one criterion that classifies an asset as a current asset?

It is primarily held for trading purposes. Signup and view all the answers

What must an entity do when line items combine amounts due to be recovered within and after 12 months?

Disclose the amount expected to be recovered after 12 months. Signup and view all the answers

Items classified as other comprehensive income are reported how?

In a section of the statement of profit or loss and OCI Signup and view all the answers

Which of the following examples represents an item of other comprehensive income that is not subsequently reclassified to profit or loss?

Revaluation gains from fair value measurements Signup and view all the answers

When should an entity use the liquidity basis of presentation?

When solvency is paramount for financial institutions. Signup and view all the answers

When is the determination of whether an item is material based on professional judgement?

Based on nature or size of information Signup and view all the answers

Which minimum line item is required in the statement of financial position?

Non-controlling interests. Signup and view all the answers

What is a reason for disaggregating property, plant, and equipment in financial statements?

To distinguish between different valuation methods. Signup and view all the answers

Which IFRS specifies the items that must be separately disclosed in the financial statements?

IAS 1 Signup and view all the answers

How long is the default assumed operating cycle when it is not clearly identifiable?

12 months. Signup and view all the answers

What must an entity disclose regarding income tax for items of comprehensive income?

The amount for each item or in the notes Signup and view all the answers

Which of these is an example of a circumstance that would require separate disclosure of material items of income?

Write-downs of inventories to net realizable value Signup and view all the answers

What is required when an entity presents additional line items in its financial statements?

They must enhance understanding of the financial position. Signup and view all the answers

How are gains/losses from the translation of foreign operations treated under IAS 21?

Accumulated in a reserve until disposal Signup and view all the answers

What should a statement of financial position ultimately not impair?

The understanding of the information. Signup and view all the answers

Separately disclosed items in financial statements help users to understand what?

Financial performance of an entity Signup and view all the answers

Which of these is NOT classified as a non-current asset?

Trade and other receivables. Signup and view all the answers

What characterizes the choice between classifying expenses by nature or by function?

A matter of professional judgement influenced by several factors Signup and view all the answers

Why might a company choice to present based on liquidity?

It provides more reliable information for financial institutions. Signup and view all the answers

What does IAS 1 permit regarding the terminology for non-current assets?

Any description including both fixed and long-term assets. Signup and view all the answers

Which financial entity type typically does NOT present in current and non-current classifications?

Banks. Signup and view all the answers

What aspect must be considered when presenting additional line items in financial statements?

The nature and liquidity of assets. Signup and view all the answers

What is a biological asset classified as under IAS 1?

Non-current asset. Signup and view all the answers

What must be disclosed about income tax relating to items of OCI?

It can be disclosed either in the financial statement or in the notes. Signup and view all the answers

Under the net of tax approach, how can income tax relating to OCI be presented?

Either in the financial statement or in the notes. Signup and view all the answers

Under what condition might an asset not be classified as current even if it meets timing criteria?

When it has a restricted use. Signup and view all the answers

What happens to unrealised gains previously recognized in OCI when they are reclassified as realized gains?

They must be eliminated to avoid double counting. Signup and view all the answers

Where are items of OCI transferred in the statement of changes in equity?

To the reserves column. Signup and view all the answers

What are the two possible formats for presenting profit or loss and other comprehensive income according to IAS 1?

Single statement or two statements Signup and view all the answers

Which of the following represents a reclassification adjustment?

Recognizing a foreign currency exchange gain in profit or loss upon disposal of investment. Signup and view all the answers

Which of the following items is an example of other comprehensive income (OCI)?

Gain from revaluation of property Signup and view all the answers

What must TAS 1 require in relation to reclassification adjustments?

They should be disclosed either in the financial statement or in the notes. Signup and view all the answers

Why might an entity compare its profit result to the previous reporting period?

To identify the main drivers of profit changes Signup and view all the answers

What must be disclosed in the statement of changes in equity according to IAS 1?

Transactions with owners Signup and view all the answers

What happens when expenses are classified according to function in financial statements?

Expenses are grouped by how they are incurred. Signup and view all the answers

How are foreign exchange gains or losses treated in terms of OCI?

They are accumulated in equity until disposal. Signup and view all the answers

What does IAS 1 require concerning components of equity affected by OCI?

Disclosure of changes in each component must be provided Signup and view all the answers

When analyzing changes in expenses, which of the following would NOT be considered?

Historical tax rates Signup and view all the answers

What does comprehensive income represent?

The total income not recognized in profit or loss Signup and view all the answers

What is the main purpose of the statement of profit or loss and other comprehensive income?

To summarize the entity's income and expenses during the reporting period. Signup and view all the answers

Which statement reflects a primary source of changes to owners' equity?

Income and expenses from the entity's activities Signup and view all the answers

What are the tax effects of revaluations mentioned in the content?

For this module, they should be ignored. Signup and view all the answers

What is required in the statement of profit or loss according to IAS 1?

Clear separation of finance costs Signup and view all the answers

What is required when presenting accumulated exchange differences upon disposal of a foreign operation?

It must be included in profit or loss. Signup and view all the answers

When should an entity disclose reclassification adjustments related to components of OCI?

They should be disclosed in both the financial statement and notes. Signup and view all the answers

In which circumstances would an entity likely report a loss?

Significant impairment losses Signup and view all the answers

What is NOT a requirement when preparing financial statements according to IAS 1?

Present changes in tax rates Signup and view all the answers

In the context of the statement of changes in equity, what does net profit after income tax contribute to?

Retained earnings. Signup and view all the answers

How should losses from revaluating property be classified?

As other comprehensive income Signup and view all the answers

How are unrealized losses treated when recognized in OCI?

They may result in future reclassification adjustments. Signup and view all the answers

Which of the following statements about finance costs is correct?

They must be separately disclosed in the income statement Signup and view all the answers

What is the purpose of reviewing the components of expenses?

To understand the financial performance of the entity Signup and view all the answers

Which of the following assets is classified as a current asset?

Trade receivables Signup and view all the answers

What must an entity demonstrate for a liability to be classified as non-current?

The right to defer must have substance at the reporting period's end. Signup and view all the answers

Which of the following is an example of a current liability?

Trade payables Signup and view all the answers

If an entity has breached loan conditions, how is this obligation classified?

As current regardless of lender's agreement. Signup and view all the answers

Under IAS 1, when should liabilities due to be settled within 12 months be classified?

As current liabilities. Signup and view all the answers

Which of the following statements regarding lease liabilities under IFRS 16 is true?

Lease liabilities must be split between current and non-current portions. Signup and view all the answers

How can an obligation be classified as non-current despite being due within 12 months?

If there is a right to roll over the obligation for at least 12 months. Signup and view all the answers

Which of the following is NOT a criterion for classifying a liability as current?

The right to defer for at least 18 months. Signup and view all the answers

What condition must a right to defer settlement satisfy for classification as non-current?

It must exist at the end of the reporting period. Signup and view all the answers

What must an entity disclose regarding dividends in their financial statements?

The amount of dividends recognized as distributions to owners Signup and view all the answers

Which of the following liabilities would always be classified as current?

A trade payable due in 30 days. Signup and view all the answers

How should an entity present the changes in equity over a reporting period?

Through a statement of changes in equity Signup and view all the answers

What is one consequence of breaching loan covenants?

Obligations are classified as demand liabilities. Signup and view all the answers

For a right-of-use asset related to leases lasting more than 12 months, how is it classified?

Only as non-current assets. Signup and view all the answers

In which format can an entity disclose information about dividends?

In the statement of changes in equity or in the notes Signup and view all the answers

What are the primary sources of changes in owner's equity?

Changes resulting from owner transactions and total comprehensive income Signup and view all the answers

What defines a current liability under IAS 1?

Liabilities due within the entity’s operating cycle or 12 months. Signup and view all the answers

Which component must be included in a statement of changes in equity?

Opening and closing balances of each equity component Signup and view all the answers

What is a significant requirement for the statement of changes in equity according to IAS 1?

All changes in equity should be reconciled Signup and view all the answers

What happens to prior period balances reported in the statement of changes in equity?

They must be restated for any material errors Signup and view all the answers

In a statement of changes in equity, what must also be presented alongside total comprehensive income?

Increases and decreases in each equity component Signup and view all the answers

What is the minimum disclosure requirement for the statement of financial position as per IAS 1?

Minimum line items for assets and liabilities Signup and view all the answers

When might an entity recognize a gain or loss in the statement of changes in equity?

From comprehensive income items Signup and view all the answers

What is the role of the notes accompanying financial statements?

To analyze changes to equity items and provide additional context Signup and view all the answers

Why is the statement of financial position important for financial statement users?

It details assets, liabilities, and equity to evaluate financial position Signup and view all the answers

What is the purpose of reporting share buybacks in the statement of changes in equity?

To show how returns to owners affect equity Signup and view all the answers

Study Notes

IAS 1 - Disclosure and Classification

Entities can present financial statements as either a single statement (profit and loss, other comprehensive income (OCI)) or two separate statements (profit and loss, OCI).

Single Statement (P/L and OCI)

This approach presents profit/loss and OCI in a single statement.
The statement includes sections for profit/loss and OCI, along with totals for each.
Consolidated statements must allocate profit and comprehensive income between non-controlling interests and parent entity owners.
Separate amounts must be presented for each group of shareholders.

Two Statements (P/L and OCI)

This approach involves separate statements of profit and loss and comprehensive income.
The profit and loss statement shows incomes and expenses, ending with the "profit or loss for the period".
The OCI statement begins with profit/loss and adds OCI items to arrive at total comprehensive income.
Consolidated profit and loss and comprehensive income allocations are disclosed in separate statements – profit/loss in the statement of profit/loss and comprehensive income in the comprehensive income statement.

Information Presented With Profit or Loss

The profit/loss is the difference between recognized income and expenses.
Specific line items (revenue, gains/losses, finance costs, share of associates/joint ventures, tax expense, discontinued operations) must be presented.
Extraordinary items are prohibited.
Expenses can be classified by nature (e.g., employee benefits, depreciation) or function (e.g., cost of sales, administration).
The chosen classification should be whichever one provides more reliable, relevant information.
Material items (significant income or expenses) must also be separately disclosed. Specific examples include write-downs of inventory/fixed assets, restructurings, disposals, litigation settlements, etc.

Information Presented With Other Comprehensive Income (OCI)

OCI items are presented in a separate section within the single statement, or a separate statement of OCI.
Items are grouped by whether they will be reclassified to profit/loss.
Example of items that may reclassify: gains/losses on translation of foreign operations.
Example of items that do not reclassify: revaluation gains on plant.
Income tax relating to each OCI item must be disclosed, either net of tax or gross.

Statement of Changes in Equity

This statement shows how equity changes over a period.
Changes result from transactions with owners and comprehensive income.
Must reconcile opening and closing balances, showing the impact of profit/loss, OCI, and owner transactions on each component of equity.
An analysis of each OCI item (source, tax, non-controlling interest) should be included in the statement or notes

Statement of Financial Position

Minimum line items are specified for assets and liabilities (e.g., property, plant, equipment, trade receivables, payables, etc.).
Assets and liabilities must be presented as current or non-current, except where a liquidity-based presentation is more relevant.
An operating cycle, or 12 months post-reporting period, is used to distinguish current/non-current classifications.
Additional disclosures related to the nature, function, or liquidity of assets or liabilities can be added.
Subclassifications (e.g., types of property, plant, equipment) are required and should appear in notes.

Studying That Suits You

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Description

Test your knowledge on International Accounting Standards with this quiz focused on IAS 1. Questions cover the presentation of profit or loss and other comprehensive income, including the single-statement and two-statement approaches. Learn about the requirements and classifications set by IAS 1.