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COVID – 19 PROJECT FOR ACCOUNTANTS

FINANCIAL ACCOUNTING AND REPORTING

STATEMENT OF COMPREHENSIVE INCOME

I. Single Statement vs. 2 Statement Approach - An entity shall present all items of income and
expense recognized in a period:

(a) In a single statement of comprehensive income, or

(b) In two statements. First is a statement displaying components of profit or loss as a

separate income statement and a second statement beginning with profit or loss and
already including the components of other comprehensive income as the statement of
comprehensive income.

II. Components of Comprehensive Income

1. Profit and Loss - Income minus Expenses including Tax expense and any Income or Loss
from Discontinued Operations.

2. Other Comprehensive income – Items of income and expenses including reclassification

adjustments (RA) that are not included in Profit and Loss as required by a standard or
interpretation. There are two types of OCI items, those that are reclassified to profit or loss
(RA) and those that are reclassified to Retained Earnings (RE). OCI includes the following
with an indication where the item is reclassified.

• Unrealized gain or loss on equity investments measured at FVOCI (RE)

• Unrealized gain or loss on debt investments measured at FVOCI (RA)
• Unrealized gain or loss from derivative contracts designated as cash flow hedge (RA)
• Revaluation Surplus (RE)
• Remeasurement Gains and losses for defined benefit plans (RE)
• Change in fair value arising from credit risk for financial liabilities measured at FVPL
(RE)
• Translation gains and losses of foreign operations (RA)

III. Minimum information in the statement of comprehensive income shall include line items that
present the following amounts for the period:

(a) Revenue

(b) Finance costs

(c) Share of the profit or loss of associates and joint ventures accounted for using the equity
method

(d) Tax expense

(e) A single amount comprising the total of:

(i) The post-tax profit or loss of discontinued operations and

(ii) The post-tax gain or loss recognized on the measurement to fair value less costs to sell
or on the disposal of the assets or disposal group(s) constituting the discontinued
operation

(e) Profit or loss

(f) Each component of other comprehensive income classified by nature

(g) Share of the other comprehensive income of associates and joint ventures accounted for
using the equity method

(i) Total comprehensive income.

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IV. Profit or loss and Total Comprehensive Income Shall be allocated on the face of the
Statement of Comprehensive income to both:

(a) Noncontrolling Interest, and

(b) Owners of the parent or Controlling Interest.

V. Methods of Presenting Expenses on the Face of the Income Statement -

a. Nature of expense method – Expenses are aggregated in the income

statement according to their nature and are not reallocated among various
functions within the entity.

Revenue X
Other income X
Changes in inventories of finished goods
and work in progress X
Raw materials and consumables used X
Employee benefit costs X
Depreciation and amortization X
Other expense X
Total expense (X)
Profit X

b. Function of expense or cost of sales method – Classifies expenses

according to their function as part of cost of sales or, for example, the cost of
distribution or administrative activities.

Revenue X
Cost of sales (X)
Gross profit X
Other income X
Distribution costs (X)
Administrative expenses (X)
Other expenses (X)
Income before tax X
Income tax expense (X)
Net income X

VI. Items that used to be considered unusual in nature and infrequent in occurrence formerly
known as “Extraordinary Items” are prohibited to be presented on the face of the income
statement and included simply as other income or other expenses. The only below the line item
or the line item presented after deducting income tax expense is the “Income or Loss from
Discontinued Operations”.

VII. Income or Loss from Discontinued Operations is the net or total sum of the following
that is reported net of tax after income from Continuing Operations:

a) Net profit or loss from the winding down operations of the operation.

b) Realized gains and losses from the sale whether in total or partial disposal of assets and
settlement of liabilities.

c) Impairment losses on the writedown to Fair Value Less Cost of Disposal of the remaining
assets at balance sheet date.

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MULTIPLE CHOICE

1. Which statements is incorrect concerning the presentation of the income statement?

a. The nature of expense method means that expenses are aggregated according to their
nature and are not reallocated among various functions within the entity.
b. The cost of sales method means that expenses are classified according to their function as
cost of sales, distribution or administrative activities.
c. PAS 1 requires the use of the cost of sales method than the nature of expense method.
d. The choice between the functional and natural presentation depends on historical and
industry factors and the nature of the entity.

2. Which of the following approaches to income measurement underlies financial accounting and
reporting?

a. Transaction approach
b. Economic approach
c. Valuation approach
d. Physical capital maintenance approach

3. The concept of “earnings”

a. Includes changes in market value of FA at FVOCI.

b. Includes foreign currency translation adjustments
c. Includes gains resulting from the sale of a productive asset in an arm’s length transaction
d. Same as comprehensive income.

4. Separate line items in an analysis of expenses by nature include

a. Purchases, transport costs, employee benefits, depreciation, extraordinary items.

b. Purchases, distribution costs, administrative costs, employee benefits, depreciation.
c. Depreciation, purchases, transport costs, employee benefits and advertising costs.
d. Cost of sales, administrative costs, transport costs and distribution costs.

5. Separate 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, employee benefits, depreciation.
c. Depreciation, purchases, employee benefits and advertising costs.
d. Cost of sales, administrative expenses and distribution expenses.

6. Information in the income statement helps users to

a. Evaluate the past performance of the entity.

b. Provide a basis for predicting future performance.
c. Assess the amount, timing and risk or uncertainty of future cash flows.
d. All of these.

7. Other comprehensive income shall include all of the following, except

a. Net unrealized loss on available for sale securities c. Revaluation surplus

b. Foreign currency translation gain d. Dividends paid to stockholders

8. The notes to the financial statements of an entity shall

I. Present information about the basis of preparation of the financial statements and the
specific accounting policies used.
II. Disclose the information required by Philippine Financial Reporting Standards that is not
presented on the face of the financial statements.
III. Provide additional information, which is not presented on the face of the financial
statements but is not relevant to understanding of the financial statements.

a. I, II and III c. I and III only

b. I and II only d. I only

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9. The notes to financial statements should be presented in what order?

I. Summary of significant accounting policies

II. Supporting computations for items presented on the face of the statements.
III. Other disclosures, including contingent liabilities, unrecognized contractual
commitments and nonfinancial disclosures.
IV. Statement of compliance with PFRS

a. I, II, III and IV c. IV, I, II and III

b. II, III, IV and I d. No specific order

10. Francis Company’s shareholders’ equity on January 1, 2020 was at P25,000,000. Francis
Company did not issue any shares and did not acquire any treasury shares during the year.
The company reported a net income of P6,000,000 for the year ended December 31, 2020.
The auditor raised questions about the following amounts that had been included in the net
income:

Loss from expropriation of property, net 800,000

Unrealized gain on the increase in value of FA at FVOCI 500,000
Adjustment of profit of prior year, net - debit 1,500,000
Cumulative accumulated forex translation loss 2,000,000
Revaluation surplus recognized 1,000,000
Loss on write-off of inventory due to a
government prohibition, net 900,000

The loss from expropriation was unusual in occurrence in Francis’ line of business. The
beginning balance of the forex translation loss was P800,000. Francis Company’s 2020 income
statement should report net income at
a. 8,000,000 c. 6,500,000
b. 7,200,000 d. 5,100,000

11. Hanson Company had the following gains during 2020 which was considered to be unusual
and infrequent in Hanson’s line of business:

Gain on the extinguishments of long-term bonds payable 300,000

Foreign currency transaction gain due to major devaluation 200,000
Gain from the expropriation of asset 900,000
Loss from the disposal of assets of discontinued operation 1,500,000

What total amount of gains should Hanson include as component of income from continuing
operations?
a. 1,400,000 c. 2,900,000
b. 1,700,000 d. 2,400,000

12. Stallion Corporation separates operating expenses in two categories: selling, and general and
administrative expenses. The adjusted trial balance at December 31, 2020, included the
following expenses and loss accounts:

Interest 1,000,000
Accounting and audit Fees 400,000
Advertising 700,000
Freight-out 1,500,000
Product development 550,000
Loss on sale of long-term investment 150,000
Officers' salaries 900,000
Depreciation on delivery equipment 500,000
Rent for office space 1,500,000
Sales salaries and commissions 250,000

One-half of the rented premises is occupied by the sales department. The entity’s total selling
expenses for 2020 is
a. 4,450,000 c. 3,850,000
b. 3,950,000 d. 3,700,000

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13. The general ledger trial balance of Michael Company includes the following accounts on
December 31, 2020:

Sales revenue 8,000,000

Interest income 500,000
Share of profit of associate 300,000
Other income 100,000
Increase in inventory of finished goods 450,000
Raw materials and consumables used 4,000,000
Employee benefit expense 1,000,000
Translation loss of foreign operations 600,000
Depreciation 350,000
Impairment loss on property 700,000
Finance costs 250,000
Other expenses 500,000
Income tax expense 600,000

What is the profit for the year ended December 31, 2020?
a. 1,950,000
b. 1,800,000
c. 1,600,000
d. 1,350,000

14. The following information was taken from Larry Company’s accounting records for the year
ended December 31, 2020:

Sales 10,000,000
Decrease in goods in process inventory 200,000
Decrease in raw materials inventory 350,000
Increase in finished goods inventory 500,000
Raw materials purchased 2,100,000
Direct labor payroll 1,000,000
Factory overhead 800,000
Freight in 300,000
Freight out 900,000
General and administrative expenses 1,600,000

How much is Larry Company’s Cost of Goods Sold?

a. 4,150,000
b. 4,000,000
c. 4,250,000
d. 3,750,000

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15. The income statement accounts of Gringo Company for the year 2020 included the following:

Net sales 11,000,000

Cost of goods sold 7,000,000
Distribution cost 800,000
Administrative expenses 1,300,000
Interest expense 500,000
Other expense 1,100,000
Interest income 500,000
Gain from expropriation 100,000
Investment income 400,000
Income tax 300,000
Income from discontinued operations 1,500,000
Unrealized gain FA at FVTOCI 1,100,000
Foreign currency translation adjustment loss 200,000
Revaluation surplus 2,500,000
Dividends declared 2,000,000
Investments by shareholders 3,000,000
Correction of an error-debit 300,000

1. The 2020 statement of comprehensive income should report income before income taxes at
what amount?

a. 2,000,000
b. 1,300,000
c. 2,300,000
d. 1,500,000

2. The 2020 statement of comprehensive income should report income from continuing
operations at what amount?

a. 1,300,000
b. 1,100,000
c. 1,000,000
d. 2,500,000

3. The 2020 statement of comprehensive income should report net income at what amount?

a. 3,400,000
b. 3,100,000
c. 2,300,000
d. 2,500,000

4. The 2020 statement of comprehensive income should report comprehensive income at what
amount?

a. 5,700,000
b. 6,300,000
c. 5,900,000
d. 6,500,000

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16. Mark Company provided the following information for the current year:

Income from continuing operations 3,000,000

Income from discontinued operation 2,200,000
Unrealized gain on financial asset at FVTPL 900,000
Unrealized gain on equity financial assets at FVTOCI 400,000
Unrealized loss on bonds and other debt financial assets at FVTOCI 250,000
Unrealized gain on futures contract designated as a cash flow hedge 550,000
Actuarial loss during the year due to increase in PBO 900,000
Foreign translation adjustment – credit 1,700,000
Revaluation surplus during the year 2,100,000
Loss on credit risk of financial liability designated at FVPL 500,000

Mark’s tax rate is 30%. Other comprehensive items listed above are all net of tax amounts.

1. What is the net income reported for the current year?

a. 3,000,000
b. 5,200,000
c. 3,500,000
d. 6,100,000

2. What is the amount of OCI that is recycled to profit or loss?

a. 2,150,000
b. 2,000,000
c. 2,450,000
d. 1,500,000

3. What is the amount of OCI that is recycled to retained earnings?

a. 2,000,000
b. 1,100,000
c. 1,300,000
d. 1,450,000

4. What is the comprehensive income for the year?

a. 8,000,000
b. 8,300,000
c. 8,250,000
d. 8,550,000

EN D

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