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Basic Question 6 of 8
Which statement(s) is (are) true?
II. Comprehensive income can be reported in the income statement or shareholder's equity.
III. Losses or gains on foreign currency transactions is an example of comprehensive income.
IV. For most firms, comprehensive income is more volatile, exceeding net income in some years, but falling below net income in others.
V. Net income is a component of comprehensive income.
I. Comprehensive income includes all changes in equity during a period.
II. Comprehensive income can be reported in the income statement or shareholder's equity.
III. Losses or gains on foreign currency transactions is an example of comprehensive income.
IV. For most firms, comprehensive income is more volatile, exceeding net income in some years, but falling below net income in others.
V. Net income is a component of comprehensive income.
User Contributed Comments 6
| User | Comment |
|---|---|
| CFAlevel | III. Gains and looses from FX transactions are NOT a part of OCI as they are reporting in the Income Statement. Only translation adjustments are. Big difference. |
| troyes | 1st is wrong since comprehensive income is part of the shareholder's equity. It is a component of equity, so to include all of equity you're still missing "investments by owners and distributions to owners" (quoted from the book) |
| aravinda | Comment on CFALevel's... It looks like all the translation adjustments gains/losses (all- current method) would get accumulated in the equity section under the other comprehensive income... but incase of the Temporal method, unrealized gains/losses are recognized in the Income statement... I believe. |
| rhardin | With Current method, it's called translation (as in the above question.) With the temporal method, it's called remeasurement, which goes to the income statement. The above III choice is referencing translation only. |
| NIKKIZ | No - choice III refers to 'losses or gains on foreign currency transactions' not 'translations'. Transactions are realized (because it occurred) and should go through the Income Statement. FX translations are not transactions and can go through Other Comprehensive Income, depending on whether the Temporal or Current method is being used. I think that III is false. |
| johntan1979 | Gains and losses resulting from translating the financial statements of foreign subsidiaries (from foreign currency to the presentation currency) [IAS 21 / "FAS 52" - "Foreign Currency Translation"] |
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Learning Outcome Statements
identify financial reporting choices and biases that affect the quality and comparability of companies' financial statements and explain how such biases may affect financial decisions;
evaluate the quality of a company's financial data and recommend appropriate adjustments to improve quality and comparability with similar companies, including adjustments for differences in accounting standards, methods, and assumptions;
evaluate how a given change in accounting standards, methods, or assumptions affects financial statements and ratios;
analyze and interpret how balance sheet modifications, earnings normalization, and cash flow statement related modifications affect a company's financial statements, financial ratios, and overall financial condition.
CFA® 2025 Level II Curriculum, Volume 2, Module 15.