Week 11 Solution to Self-Study Questions

PACC6004: Financial Accounting 2 Solution to Self-Study Questions Chapter 16 The statement of profit and loss and other comprehensive incomeand the statement of changes in equity Opening questions 16.2 What does 'total comprehensive income' represent, and in which financial statement shall it be presented? Total comprehensive income represents the sum of 'profit or loss' and 'other comprehensive income'. An entity may present a single statement of profit or loss and other comprehensive income, with 'profit or loss' and 'other comprehensive income' being presented in two sections. Alternatively, an entity may present the profit or loss section in a separate statement of profit or loss. If so, the separate statement of profit or loss shall immediately precede the statement presenting comprehensive income, which shall begin with profit or loss. Information about total comprehensive income shall also be reported within the statement of changes in equity. The statement of changes in equity shall show how different components of equity have been changed throughout the accounting period by profit or loss, and other comprehensive income. 16.4 What is a 'reclassification adjustment' as it relates to profit or loss and other comprehensive income? AASB 101, paragraph 7, defines a reclassification adjustment as: amounts reclassified to profit or loss in the current period that were recognised in other comprehensive income in the current or previous periods. (AASB 101) While some accounting standards require certain gains or losses that are initially recognised within other comprehensive income to be reclassified to profit or loss at a subsequent date (a reclassification adjustment), some other accounting standards ban certain gains or losses from being reclassified. 16.6 What is the role of the statement of changes in equity? The statement of changes in equity provides a reconciliation of opening and closing equity and provides details of the various equity accounts impacted by total comprehensive income. It also provides information about the effects of transactions with owners in their capacity as owners (for example, payments of dividends or further direct investments in shares).