Deck 14: The Statement of Comprehensive Income and Statement of Changes in Equity

Question 1

Discovery of an error from a prior period corrected retrospectively is an example of an item reportable under other comprehensive income.

Answer 1

True

Question 2

A statement displaying components of profit or loss is referred to in IAS 1 as a(n):

A)profit and loss statement.
B)statement of income.
C)income statement.
D)statement of profit and loss.

Answer 2

D

Question 3

The choice between reporting expenses by nature or by function is extremely important,as different net profit figures are derived depending upon the choice made.

Answer 3

False

Question 4

As part of the process of international harmonisation,standard setters have removed the need for professional judgment to be exercised in respect of expenses; all discretion that once existed has been removed.

Question 5

Changes in accounting policy are to be made retrospectively or prospectively,depending upon the background to the change.

Question 6

An entity shall recognise all items of income and expense in a period in profit or loss unless an International Financial Reporting Standard requires or permits otherwise.

Question 7

IAS 1 requires profit or loss and the total comprehensive income for the period reported on the face of the statement of comprehensive income to be disaggregated between the non-controlling interest and the owners of the parent.

Question 8

Profit is a measure of financial performance and therefore may not truly reflect the success or otherwise of an organisation.

Question 9

IAS 1 permits an entity to present all items of income and expense recognised in a period to be presented in either the statement of comprehensive income or the statement of profit and loss.

Question 10

IAS 1 permits entities to present the components of other comprehensive income either before tax effects (gross presentation)or after their related tax effects (net presentation).

Question 11

All disclosure requirements that relate to an entity's profit or loss are included in IAS 1.
FALSE

Question 12

In establishing the classification of items in the statement of profit and loss,the size of an item is an appropriate basis for establishing a separate classification (by nature or function)for it.

Question 13

By focusing only on the statement of profit and loss,we do not obtain a full picture of all the gains and losses that may have occurred for an entity during the period.

Question 14

Comprehensive income includes dividend payments to shareholders.

Question 15

The statement of profit or loss (income statement)under IAS 1 is designed to report all revenues and expenses to determine profit or loss.

Question 16

Under IAS 1 additional line items,headings and subtotals:

A)are precluded as they provide unnecessary information that may confuse the user.
B)shall be presented on the face of the statement when such presentation is relevant to an understanding of the entity's financial performance.
C)shall be presented on the face of the statement when such items can be measured reliably and it is probable these events will occur.
D)will only be included in the notes to the statement of profit and loss if they are relevant to an understanding of the entity's financial performance.

Question 17

IAS 8 requires all errors that relate to prior reporting periods to be corrected by adjusting the opening balance of retained earnings and restating comparative information.

Question 18

An item must be outside the ordinary operations of the business or be of a non-recurring nature to be classified as an extraordinary item under IAS 1.

Question 19

IFRS 2 requires that the fair value of the option issued as a share-based payment to an employee,be determined and this value be deemed to be the cost of the options.

Question 20

All adjustments to equity other than those related to transactions with owners in their capacity as owners are disclosed in the statement of comprehensive income (IAS 1).

Question 21

The effect of a revision of an accounting estimate must be recognised in profit and loss in which reporting periods?

A)in the present, prior (by adjusting retained earnings) and future periods affected
B)in the present and future periods affected
C)in the present and prior reporting periods (by adjusting retained earnings)
D)not recognised in any period

Question 22

The problem with a 'blanket rule' requiring all expenditure of a particular type to be written off as incurred (e.g.expenditure on research),is that:

A)It is too much like US GAAP.
B)It does not enable readers of financial reports to differentiate between entities that have generated future economic benefits from particular activities and those who have not.
C)It does not enable readers of financial reports to differentiate between entities that have managed their earnings and those that have not.
D)It does not enable readers of financial reports to differentiate between entities that are going to continue to be successful and those that are not.

Question 23

Profit is:

A)an ideal measure of the 'well-offness' of a firm because income and expenses are clearly defined.
B)only a measure of financial performance and therefore not useful in decision-making.
C)directly affected by the accounting policy choices implemented by management.
D)comparable across all firms as it is simply calculated by subtracting expense from revenues.

Question 24

If it is found that an error had been made in a prior period:

A)The error should be rectified by including the item of income or expense in the period in which the error was discovered.
B)IAS 1 does not cover this concept and so no entry is required.
C)IAS 8 requires that errors are corrected via an adjustment to opening balance of retained earnings.
D)Material errors discovered in the current reporting period must be included in that period's statement of comprehensive income, while non-material errors may be corrected with an adjustment to opening retained earnings.

Question 25

Estimations are frequently made in the financial statements in relation to items such as bad debts,inventory obsolescence,an asset's useful life and the expected pattern of consumption of economic benefits of depreciable assets.The effect of these estimations on the financial statements is to:

A)increase the variability of profits.
B)make the statement unreliable.
C)reduce the relevance of the profit figures reported.
D)None of the given answers are correct.

Question 26

Hicks' notion of income is that:

A)An individual's income is what they consume.
B)An individual's income is the minimum value that they can consume during a period and still be as well off at the end as they were in the beginning.
C)An individual's income is the difference between their revenues and expenses.
D)An individual's income is the maximum value that they can consume during a period and still be as well off at the end as they were in the beginning.

Question 27

An entity is required in IAS 1 to produce:

A)a statement of changes in equity.
B)a statement of financial position.
C)a statement of comprehensive income.
D)all of the given answers.

Question 28

Examples of classification of expenses by their nature are:

A)employee expenses and distribution expenses.
B)depreciation and marketing expenses.
C)borrowing costs and distribution expenses.
D)employee expenses and depreciation expenses.

Question 29

A statement of comprehensive income that includes revenue,cost of sales,selling expenses,financial expenses would have been prepared using the:

A)nature of expense method.
B)narrative method.
C)revenues and gains approach.
D)function of expense approach.

Question 30

Which of the following is not required to be shown on the face of the statement of comprehensive income?

A)tax expense
B)revenue
C)share of profit or loss of associates and joint ventures using the equity method
D)share of profit or loss of associates and joint ventures using the proportional consolidation method

Question 31

IAS 18 Revenue requires a number of disclosures,including information about:

A)rents, interest, royalties and dividends.
B)accounting policies adopted for the recognition of revenues.
C)methods adopted to determine the stage of completion of contracts involving the rendering of services.
D)all of the given answers.

Question 32

The statement of changes in equity is required:

A)because IAS 1 deals with income and does not define profit.
B)to show profit and loss for the period.
C)to summarise the large number of transactions that take place on the statement of profit and loss.
D)to provide a reconciliation of opening and closing equity, and also to provide details of the various equity accounts that are impacted by the period's total comprehensive income.

Question 33

The choice of classification between nature and function of expenses from ordinary activities depends on:

A)the size of the items that would be reported under the possible classifications.
B)the historical evidence about the probability of the items recurring.
C)the classification that provides information that is reliable and more relevant.
D)the classification that best reflects the way expenses vary directly or indirectly with the entity's level of activity.

Question 34

A statement of comprehensive income that includes revenue,other income,employee benefits and costs,motor vehicle expenses would have been prepared using the:

A)nature of expense method.
B)narrative method.
C)revenues and gains approach.
D)function of expense approach.

Question 35

IRFS 2 lists a number of factors that need to be considered when valuing an executive share option.They include:

A)the expected volatility of the share price.
B)the exercise price of the share.
C)the life of the underlying share.
D)the expected volatility of the share price and the exercise price of the share.

Question 36

When selecting a presentation format for the statement of comprehensive income management must select the one that is:

A)most relevant.
B)most reliable.
C)most consistent.
D)most relevant and the most reliable.

Question 37

Extraordinary items will be included in the statement of comprehensive income:

A)when they are material and need to be disclosed separately.
B)when an item of revenue or expense is attributable to an event outside the ordinary course of business.
C)when an expense or revenue is of a non-recurring nature.
D)None of the given answers are correct.

Question 38

Profit is calculated as the difference between income and expenses as defined by the IASB Conceptual Framework.As a result:

A)The matching principle is of prime importance in calculating profit.
B)Profit is influenced directly by the definitions and measurement rules for assets and liabilities.
C)There is no need for separate recognition criteria for profit.
D)Profit is influenced directly by the definitions and measurement rules for assets and liabilities and there is no need for separate recognition criteria for profit.

Question 39

Where a change in accounting estimates occurs,the following should be disclosed:

A)the fact that the amount of the effect on future periods will not be disclosed because estimating that amount is impracticable.
B)the reason for the change and comparative data to show the effect with and without the change.
C)the nature of the change and the impact on previous statements of profit and loss.
D)the fact that the amount of the effect on future periods will not be disclosed because estimating that amount is impracticable and the reason for the change and comparative data to show the impact with and without the change.

Question 40

Government departments are now required to embrace traditional accounting methods.The broad effect of this requirement is to:

A)emphasise the reporting of the service role of government departments.
B)emphasise the use of cash accounting by government departments.
C)introduce accrual accounting and an emphasis on profit.
D)introduce value added reporting.

Question 41

An implication of the fact that traditional financial accounting is based on a model that emphasises property rights is that:

A)fair values become of critical importance.
B)such rights are recognised as intangible assets.
C)many social costs are ignored.
D)these financial reports are always prepared on a 'true and fair' basis.

Question 42

'If we were to look only at the expenses and income ..... recorded in the statement of profit or loss we would not get a full picture of all expenses and income that were recognised in the current period'.Explain what this statement means,and other items that need to be 'looked at'?

Question 43

Amounts reclassified to profit or loss in the current period that were recognised in 'other comprehensive income' in the current or previous periods are known as a:

A)disposal of revenue or expenses
B)de-recognition of transactions
C)reclassification adjustment
D)reprocessed transaction

Question 44

When there is a change made to the useful life of an asset:

A)It must be recognised as a change in an accounting estimate and the impact of the reported change must be disclosed in the notes to the accounts.
B)It must be recognised as an error and all previous financial statements must be restated.
C)It must be recognised as an error and opening retained earnings and opening balances of the asset must be restated.
D)It is recognised as a change in an accounting estimate and the opening retained earnings and opening balances of the asset must be restated.

Question 45

Which of the following items does not give rise to a reclassification adjustment from components of other comprehensive income to profit and loss?

A)disposal of a foreign operation
B)de-recognition of revalued assets
C)sale of a foreign subsidiary
D)de-recognition of available-for-sale financial assets

Question 46

Components of 'other comprehensive income' would include:

A)net profit reported in the statement of comprehensive income.
B)net operating cash flows reported on the statement of cash flows.
C)changes in revaluation surplus.
D)net operating cash flows reported on the statement of cash flows, plus total of all income and expenses recognised directly in equity.

Question 47

What is comprehensive income and how would users of financial statements get an indication of what the figure for comprehensive income might be?

Question 48

When items of income and expense are material,and their nature and amount are separately disclosed,this could indicate the existence of:

A)an extraordinary item.
B)an abnormal item.
C)an adjusting item.
D)an unusual item.

Question 49

Which of the following would not be considered a 'prior period error' for the purposes of IAS 8?

A)mathematical mistakes
B)fraud
C)misinterpretations of fact
D)none of the given answers

Question 50

Which of the following statements is not in accordance with IAS 1 Presentation of Financial Statements with respect to the statement of comprehensive income?

A)All items of income and expense recognised in a period are to be presented in a single statement of comprehensive income.
B)All items of income and expense recognised in a period are permitted to be presented in two statements: 1) a separate statement of profit and loss and 2) a statement beginning with profit or loss and displaying components of other comprehensive income.
C)An entity shall present an analysis of expenses in profit or loss using a classification based on either the nature of expenses or their function within the entity, whichever provides information that is reliable and more relevant.
D)Components of other comprehensive income include gain on sale of property plant and equipment.

Question 51

Changes in accounting estimates include:

A)changes in expected warranty costs on goods sold under guarantee.
B)changes in the expected pattern of consumption of economic benefits of depreciable assets.
C)changes in the provision for inventory obsolescence.
D)all of the given answers.

Question 52

Following are the items of income and expense recognised during the period by Murray PlC: $\begin{array}{|l|l|}\hline \text { II } & \text { Foreign exchange differences } \\\hline \text { III } & \text { Losses on ineffective cash flow hedges } \\\hline \text { IV } & \text { Retrospective adjustment from a change in accounting policy } \\\hline \text { V } & \text { Actuarial losses on defined benefit pension plans } \\\hline \text { VI } & \text { Pror period error discovered } \\\hline\end{array}$ Which of the following combinations identify all items permitted in IAS 1 'Presentation of Financial Statements to be presented under other comprehensive income?

A)I, II, V and VI
B)II, III, VI and V
C)I, III, and VI
D)III, IV and V

Question 53

Which of the following is not a required disclosure pertaining to payments made to auditors?

A)the amounts paid to an auditor for an audit of financial statements of the entity
B)the amounts payable to an auditor for a review of financial statements of the entity
C)the amounts paid to assurors of corporate sustainability reports
D)the nature of each of the non-audit services provided by the auditor

Question 54

How does IAS1 define 'extraordinary items'?
Discuss the current arrangements for accounting for such items.

Question 55

Changes in an entity's equity between the beginning and the end of the reporting period reflect the increase or decrease in its:

A)liabilities during the period.
B)net profit for the period.
C)assets during the period.
D)net assets during the period.

Question 56

Which of the following items is not an example of items reportable under other comprehensive income?

A)changes in revaluation surplus
B)actuarial gains and losses on defined contribution plans
C)gains and losses arising from translating the financial statements of a foreign operation
D)the effective portion of gains and losses on hedging instruments in a cash flow hedge

Question 57

Paragraph 98 of IAS 1 lists some circumstances that may give rise to separate disclosure of items of income and expense.They include:

A)reversals of inventory write-downs.
B)extraordinary items.
C)finance costs.
D)distribution costs.

Question 58

When initial application of an International Financial Reporting Standard has an effect on the current period or any prior period,would have such an effect except that it is impracticable to determine the amount of the adjustment,or might have an effect on future periods,an entity shall disclose:

A)the title of the International Financial Reporting Standard.
B)the nature of the change in accounting policy.
C)when applicable, a description of the transitional provisions.
D)all of the given answers.

Question 59

Following are the items of income and expense recognised during the period by Gordon Field PlC: $$\begin{array} { | l | l | } \hline \text { I }&\text { Gains and losses arising from translating the financial statements of a foreign } \\&\text { operation }\\\hline \text { II } & \text { Gains and losses on re-measuring available-for-sale financial assets } \\\hline \text { II } & \text { Gain on sale of property, plant and equipment } \\\hline V & \text { Actuarial losses on defined benefit pension plans } \\\hline V & \text { Prior period errors discovered } \\\hline V & \text { Prospective adjustment resulting from a change in accounting estimates } \\\hline\end{array}$$ Which of the following combinations identify all items permitted in IAS 1 Presentation of Financial Statements to be presented under other comprehensive income?

A)I, II, IV, V and VI
B)I, II, IV, and V
C)II, III, V and VI
D)II, V and VI

Question 60

Which of the following statements is not in accordance with IAS 1 Presentation of Financial Statements with respect to the statement of comprehensive income?

A)An entity shall not present any items of income or expense as extraordinary items, in the statement of comprehensive income or the separate statement of profit and loss (if presented), or in the notes.
B)An entity shall disclose the amount of income tax relating to each component of other comprehensive income, including reclassification adjustments, either in the statement of comprehensive income or in the notes.
C)As a minimum, the statement of comprehensive income shall include line items of each component of other comprehensive income classified by nature.
D)An entity shall recognise all items of income and expense in a period in profit or loss unless an International Financial Reporting Standard requires or permits otherwise, for example, the financial effect of changes in accounting estimates.

Question 61

Discuss the accounting treatment prescribed by IAS 1 Presentation of Financial Statements for reclassification adjustments from components of other comprehensive income to profit and loss.

Question 62

Discuss the impact changes in accounting policies can have on users of the financial statements.

Question 63

What is a prior period error?
Explain the accounting treatment for prior period errors.

Question 64

Discuss three items that are permitted in IAS 1 Presentation of Financial Statements to be presented in other comprehensive income and explain how each item arises.

Question 65

Discuss the components required to be disclosed in the statement of changes in equity as prescribed in IAS 1 Presentation of Financial Statements.