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Statement of Comprehensive Income

The document discusses the statement of comprehensive income and includes self-test questions about measuring income, distinguishing revenues/expenses from gains/losses, differentiating net and comprehensive income, describing earnings management and expense presentation methods. It also provides learning activities on identifying general and administrative expenses and preparing a statement of changes in equity.

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51 views2 pages

Statement of Comprehensive Income

The document discusses the statement of comprehensive income and includes self-test questions about measuring income, distinguishing revenues/expenses from gains/losses, differentiating net and comprehensive income, describing earnings management and expense presentation methods. It also provides learning activities on identifying general and administrative expenses and preparing a statement of changes in equity.

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Statement of Comprehensive Income

ASSESSMENT

Self- Test Questions


1. Explain the transaction approach in measuring income.
 According to what I have read, the transaction approach in measuring income
records the company transaction in detailed form and also reports the income by
summarizing and reporting it also in detail.

2. How are revenues and expenses different from gains and losses?
 Revenues and expenses are not an opposite financial result because of the same
activity. Revenue is the income that the company earned through the business’
primary goods or services, while the expense is the money that the company used
for the production of the business. Unlike revenues and expenses, gains and losses
are the opposing financial results that was produced through the company’s non-
primary operations and production processes. Gain is when the company produces
profit, while losses happened when a company loses money.

3. Differentiate net income from comprehensive income.


 Net income is the financial gain or loss that a business has made in one single
time period while the comprehensive income is the sum of the regular income and
other comprehensive income. It includes realized and unrealized income, like
unrealized gains and losses. It also has the detailed view of a company’s net
income.

4. What is earnings management? How can it affect the quality of earnings?


 Earnings management is the technique that an accountant uses to make financial
statements that present an overly positive view of the company’s business
activities. It can create financial statements that inflate or has smooth earnings.

5. Describe the 2 methods of presenting expenses on the statement of comprehensive


income. Which method is prescribed by the Standard?
 The 2 methods of presenting expenses on statement of comprehensive income are
Nature of Expense method and the Function of Expense or the Cost of Sales
method. Nature of Expense method is when an entity aggregates expenses within
profit or loss according to their nature. The advantage of using this method is, this
is simple to apply because no allocations of expenses to functional classifications
are necessary. The Function of Expense or the Cost of Sales is when an entity
classifies the expenses according to their function. The advantage of this method
is it can provide more relevant information.
Statement of Comprehensive Income

6. Identify the information reported in the statement of changes in equity.


 Statement of Changes in Equity is one of the components of a complete set of
financial statements. Generally, it reports the movements of the accumulated
earnings and losses and where it came from over a reporting period. It is usually
applied to a sole proprietorship.

Learning Activity 1
Required: What amount of these costs should be reported as general and administrative expenses
for 2019?
Accounting and Legal Fees P 25,000
Officer’s Salaries 150,000
Sales Representative Salaries 215,000
General and Administrative Expenses for 2019 P390,000

Learning Activity 2
Required: Prepare the Statement of Changes in Equity for the year ended December 31, 2019

Hunt Co.
Statement of Changes in Equity
For the Year Ended December 31, 2019

Share Capital Retained Earnings Revaluation Total


At December 31, 2018 P1,000,000 800,000 200,000 P2,000,000
Changes in accounting policy - - - -
Prior period error correction - - - -

Add: Shares (par value) 400,000 - - 400,000


Comprehensive Income - 650,000 - 650,000
Profit 720,000 - - 720,000
Deduct: Dividends - - 200,000 200,000

As at December 31, 2019 P2,120,000 P1,250,000 P400,000 P3,770,000

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