4.3: Measurement of Income Flashcards
What are the three main types of income considered when measuring income?
Net income: Revenues minus expenses and losses from both continuing and discontinued operations.
Comprehensive income: Net income plus/minus other comprehensive income (OCI).
Operating income: Ongoing regular income before irregular items (like gains/losses, discontinued operations).
What is Underlying Concept 4.5?
It refers to the conceptual framework that provides definitions for the elements of revenues, expenses, gains, and losses in financial reporting.
What is the difference between net income and comprehensive income?
Net income includes revenues and gains minus expenses and losses from both continuing and discontinued operations.
Comprehensive income includes net income plus other comprehensive income (OCI), which accounts for unrealized gains and losses (e.g., revaluation of assets).
What is the current operating performance approach to income reporting?
It is a method where income is measured by focusing only on regular, recurring revenue and expense elements (i.e., sustainable earnings), excluding irregular or nonrecurring items.
What is other comprehensive income (OCI) under IFRS?
OCI includes unrealized gains and losses on certain securities, foreign exchange gains or losses, revaluations, and other items that are not included in net income but affect equity.
How are OCI items treated differently under IFRS and ASPE?
IFRS: OCI items are typically recycled/reclassified (e.g., foreign exchange gains/losses) and affect comprehensive income before being reclassified to net income.
ASPE: Many OCI items are directly recognized in net income or equity without reclassification (e.g., revaluation not allowed, pension gains/losses recognized in net income).
What is the role of accumulated other comprehensive income (AOCI) in financial statements?
AOCI is an equity account in the statement of financial position that reflects the accumulated OCI, which will later be reclassified to net income under IFRS but remains as part of equity under ASPE.
What is a key debate in the measurement of income under What Do the Numbers Mean? 4.2?
There is debate over whether analysts fully understand the concept of comprehensive income, as some items (like unrealized gains and losses) are included in OCI rather than net income, which could confuse the interpretation of earnings.
Why does IFRS use the concept of comprehensive income while ASPE does not?
IFRS uses comprehensive income to provide an all-inclusive view of income, capturing all changes in equity except those related to shareholders, while ASPE focuses more narrowly on net income.
