5ISTQ - Intermediate Accounting (Kieso)

Question

Question: Which of the following is not an acceptable way of displaying the components of other comprehensive income under IFRS?

(a) Within the statement of retained earnings. 

(b) Second income statement. 

(c) Combined statement of comprehensive income. 

(d) All of these choices are acceptable.

Step-by-Step Solution

Answer

Option a is the correct answer.

Step 1: Meaning of Retained Earnings

Retained earnings refer to the amount of profits left with a business entity after making the payments of all direct costs, indirect costs, income taxes, and dividends to the shareholders.

Step 2: Explanation for the correct options

The components of other comprehensive income are not reported under IFRS in the statement of retained earnings. Still, they are disclosed in the statement of profit and loss or income statement of a business concern.

Step 3: Explanation for the incorrect options

The income statements include a variety of formats, such as single-step and multi-step income statements. An income statement must reflect the other comprehensive income. In addition, the statement of combined comprehensive income also considers the components of other comprehensive income, such as unrealized revenues, expenses, gains, and losses.