Income Statement

Question 1

It is a formal statement showing the financial performance or P/L of an entity for a period of time

Answer 1

Income Statement

Question 2

It is primarily measured in terms of the level of income earned by the entity through the effective and efficient utilization of resources

Answer 2

Financial performance of an entity

Question 3

It is the change in equity during a period resulting from transactions other than changes resulting from transactions with owners in their capacity as owners

Answer 3

Comprehensive income

Question 4

It is the total of income less expenses, excluding the components of other comprehensive income

Answer 4

Profit or Loss

Question 5

Are amounts reclassified to profit or loss or retained earnings in the current period that were recognized in OCI in the current or previous periods

Answer 5

Reclassification adjustments

Question 6

What are the 2 forms of presenting the IS?

Answer 6

Functional presentation
Natural presentation

Question 7

It is the residual interest in the assets of an entity after deducting all of the liabilities

Answer 7

Equity

Question 8

It is the equivalent of net assets, meaning total assets minus total liabilities

Answer 8

Equity

Question 9

It is a basic statement that shows the movements in the elements or components of the shareholders’ equity

Answer 9

Statement of Changes in Equity

Question 10

What is the purpose of reporting comprehensive income?

a. To report transactions with owners
b. To report a measure of overall entity performance
c. To replace net income with a better measure
d. To combine income from continuing operations with income from discontinued operations

Answer 10

b. To report a measure of overall entity performance

Question 11

Which of the following is not an acceptable option of reporting other comprehensive income?

a. In a separate statement of comprehensive income
b. In a single statement of comprehensive income
c. In the notes to financial statements
d. In a statement of changes in equity

Answer 11

c. In the notes to financial statements

Question 12

When a complete set of financial statements is presented, comprehensive income and the components should

a. Appear as a part of discontinued operations.
b. Be reported net of related income tax effect, in total and individually.
c. Appear in a supplemental schedule in the notes.
d. Be displayed in a statement that has the same prominence as other financial statements.

Answer 12

d. Be displayed in a statement that has the same prominence as other financial statements.

Question 13

Why is reclassification adjustment used when reporting other comprehensive income?

a. To reclassify an item of comprehensive income as another item of comprehensive income
b. To avoid double counting of items
c. To make net income equal comprehensive income
d. To adjust the income tax effect of OCI

Answer 13

b. To avoid double counting of items

Question 14

The components of OCI include all, except

a. Unrealized gain on derivative contract designated as cash flow hedge
b. Loss from translating the financial statements of a foreign operation
c. Actuarial gain on defined benefit plan
d. Dividend paid to shareholders

Answer 14

d. Dividend paid to shareholders

Question 15

Which is not a component of OCI?

a. Foreign currency translation adjustment
b. Unrealized gain on financial asset held for trading
c. Loss on derivative designated as cash flow hedge
d. Change in revaluation surplus

Answer 15

d. Change in revaluation surplus

Question 16

Which is not a component of OCI?

a. Remeasurement of defined benefit plan
b. Treasury shares at cost
c. Foreign currency translation adjustment
d. Unrealized gain on equity investment at FVOCI

Answer 16

b. Treasury shares at cost

Question 17

Which of the following options for displaying other comprehensive income is preferred?

a. A continuation from net income in the income statement
b. A separate statement that begins with net income
c. In the statement of changes in equity
d. A continuation from net income in the income statement or a separate statement that begins with net income

Answer 17

d. A continuation from net income in the income statement or a separate statement that begins with net income

Question 18

How should exchange gain or loss resulting from foreign currency transaction be accounted for?

a. Component of income from continuing operations
b. Component of other comprehensive income
c. Included in the statement of financial position
d. Included in net income for gain but deferred for loss

Answer 18

a. Component of income from continuing operations

Question 19

Unusual and infrequent gain and loss should be reported

a. Below income from continuing operations.
b. As an extraordinary item.
c. Line item within income from continuing operations.
d. Component of other comprehensive income.

Answer 19

c. Line item within income from continuing operations.

Question 20

The term comprehensive income

a. Must be reported on the face of the income statement.
b. Includes all changes in equity except those resulting from investments by and distributions to owners.
c. Is the net change in owners’ equity for the period.
d. Is synonymous with the term net income.

Answer 20

b. Includes all changes in equity except those resulting from investments by and distributions to owners.

Question 21

All of the following components of other comprehensive income are reclassified to profit or loss, except

a. Gain from translation of a foreign operation
b. Loss from remeasuring debt investment at FVOCI
c. Gain on hedging instrument in a cash flow hedge
d. Gain on remeasuring equity investment at FVOCI

Answer 21

d. Gain on remeasuring equity investment at FVOCI

Question 22

Which component of other comprehensive income should be reclassified to retained earnings?

a. Revaluation surplus
b. Remeasurement of defined benefit plan
c. Change in fair value attributable to credit risk of financial liability designated at FVPL
d. All of these components of OCI should be reclassified to retained earnings

Answer 22

d. All of these components of OCI should be reclassified to retained earnings

Question 23

Earnings

a. Include certain gains excluded from comprehensive income
b. Are the same as comprehensive income
c. Exclude certain gains and losses included in comprehensive income
d. Include certain gains and losses excluded from comprehensive income

Answer 23

c. Exclude certain gains and losses included in comprehensive income

Question 24

The two-statement approach of presenting comprehensive income is preparing

a. A comparative statement of comprehensive income
b. A combined statement of comprehensive income and retained earnings
c. A combined income statement and a statement of changes in equity
d. A separate income statement and a separate statement of comprehensive income

Answer 24

d. A separate income statement and a separate statement of comprehensive income

Question 25

An analysis of expenses is based on a. The nature of expenses. b. The function of expenses. c. Either the nature of expenses or the function of expenses, whichever provides information that is reliable and more relevant. d. Either the nature of expenses or the function of expenses, whichever the entity would prefer to present.

Answer 25

c. Either the nature of expenses or the function of expenses, whichever provides information that is reliable and more relevant.

Question 26

Line items in an analysis of expenses by nature include a. Purchases, transport costs, employee benefits, depreciation, extraordinary items. b. Distribution costs and administrative costs. c. Depreciation, purchases, transport costs, employee benefits and advertising costs. d. Cost of goods sold, administrative and distribution costs.

Answer 26

c. Depreciation, purchases, transport costs, employee benefits and advertising costs.

Question 27

Line items in an analysis of expenses by function include a. Purchases, transport costs, employee benefits, depreciation, extraordinary items b. Purchases, distribution costs, administrative costs c. Depreciation, purchases, transport costs, employee benefits and advertising costs d. Cost of goods sold, administrative and distribution costs

Answer 27

d. Cost of goods sold, administrative and distribution costs

Question 28

Under IFRS, the extraordinary item presentation a. Has not changed from current rules. b. Has been eliminated. c. Has been eliminated from the net of tax presentation. d. Has been eliminated from EPS reporting.

Answer 28

b. Has been eliminated.

Question 29

Amounts reclassified to profit or loss or retained earnings in the current period but were recognized in OCI in the current or previous periods are known as a. Correcting entries b. Prior period adjustments c. Unusual and irregular items d. Reclassification adjustments

Answer 29

d. Reclassification adjustments

Question 30

The income statement reveals a. Resources and equity at a point in time. b. Resources and equity for a period of time. c. Net earnings at a point in time. d. Net earnings for a period of time.

Answer 30

d. Net earnings for a period of time.

Question 31

Conceptually, net income is a measure of a. Wealth b. Change of wealth c. Capital maintenance d. Cash flow

Answer 31

b. Change of wealth

Question 32

Which term cannot be used to describe a line item in the statement of comprehensive income? a. Revenue b. Gross income c. Income before tax d. Extraordinary

Answer 32

d. Extraordinary

Question 33

Comprehensive income includes all, except a. Revenue and gain b. Expense and loss c. Preference share dividend d. Unrealized gain and loss on derivative contract

Answer 33

c. Preference share dividend

Question 34

Comprehensive income includes all, except a. Dividend revenue b. Loss on disposal of asset c. Investment by owners d. Unrealized gain on trading investment

Answer 34

c. Investment by owners

Question 35

Income determination is arrived at by a. Measuring the change in owners' equity b. Identifying the change in the purchasing power c. Using a transaction approach d. Applying the value added concept

Answer 35

c. Using a transaction approach

Question 36

Net income equals a. Assets minus liabilities b. Revenue minus cost of goods sold c. Revenue minus expenses d. Cash receipts minus cash payments

Answer 36

c. Revenue minus expenses

Question 37

Comprehensive income always a. Is the same as net income. b. Is greater than net income c. Is less than net income. d. Could be greater than or less than net income.

Answer 37

d. Could be greater than or less than net income.

Question 38

Gains are a. Inflows from selling a product to a customer b. Increases in equity resulting from transfers of assets to the entity from owners c. Increases in equity from peripheral transactions d. All of these can be considered gains

Answer 38

c. Increases in equity from peripheral transactions

Question 39

Change in equity from nonowner sources is a. Comprehensive income b. Revenue c. Expense d. Gain or loss

Answer 39

a. Comprehensive income

Question 40

The limitations of the income statement include all of the following, except a. Items that cannot be measured reliably are not reported b. Only actual amounts are reported in net income. c. Income measurement involves judgment d. Income numbers are affected by the accounting method

Answer 40

b. Only actual amounts are reported in net income.

Question 41

Which of the following would represent the least likely use of an income statement? a. Use by customers to determine an entity's ability to provide needed goods and services b. Use by labor unions to examine earnings closely as a basis for salary discussions c. Use by government to formulate tax policy d. Use by investors interested in financial position

Answer 41

d. Use by investors interested in financial position

Question 42

The income statement would help in which of the following? a. Evaluate liquidity b. Evaluate solvency c. Estimate amount, timing and uncertainty of future cash flows d. Estimate future financial flexibility

Answer 42

c. Estimate amount, timing and uncertainty of future cash flows

Question 43

Investors and creditors use income statement information for each of the following, except a. To evaluate the future performance of an entity. b. To provide a basis for predicting future performance. c. To help assess the risk and uncertainty of achieving future cash flows. d. To evaluate the past performance of an entity.

Question 44

The income statement would help in which of the following? a. Assess capital structure b. Determine financial position c. Estimate future cash flows d. Estimate need for additional financing

Answer 44

c. Estimate future cash flows

Question 45

In the statement of changes in equity, the effect of a change in accounting policy is presented a. Separately for each component of equity. b. In aggregate for total equity. C. In to owners of the parent and the noncontrolling interest. d. Separately for the total amount attributable to owners of parent and the noncontrolling interest

Answer 45

a. Separately for each component of equity.

Question 46

In the statement of changes in equity, the effect of the correction of a prior period error is presented a. Separately for each component of equity. b. In aggregate for total equity. c. In total for the amount attributable to owners of the parent and the noncontrolling interest. d. Separately for the total amount attributable to owners of the parent and the noncontrolling interest.

Answer 46

a. Separately for each component of equity.

Question 47

Which does not appear in the statement of retained earnings? a. Net loss b. Prior period error c. Preference share dividend d. Other comprehensive income

Answer 47

d. Other comprehensive income

Question 48

Which appears first in a statement of retained earnings? a. Net income b. Prior period error c. Cash dividend d. Share dividend

Answer 48

b. Prior period error

Question 49

Corrections of errors in prior period are included in a. Retained earnings b. Other comprehensive income c. Net income d. Share premium

Answer 49

a. Retained earnings