CFA Practice Question

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CFA Practice Question

Which statement(s) is (are) true?

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 than net income, exceeding net income in some years but falling below net income in others.
V. Net income is a component of comprehensive income.
Correct Answer: II, III, IV and V

I is false...except those changes resulting from investments by owners and distribution to owners.
II is true. It is reported either at the bottom of the income statement or under the accumulated other comprehensive income section of shareholder's equity.
III is true. This is one of the four components of comprehensive income.
IV is also true.
V is true. Comprehensive income includes net income, changes in unrealized investment gains and losses, and other items affecting equity.

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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