Question

Which of the following is false?

(a) Under GAAP, companies cannot record gains on transactions involving their own shares.

(b) Under IFRS, companies cannot record gains on transactions involving their own shares.

(c) Under IFRS, the statement of stockholders’ equity is a required statement.

(d) Under IFRS, a company records a revaluation surplus when it experiences an increase in the price of its common stock.

Short answer

Answer

The correct option is(d). Under IFRS, a company records a revaluation surplus when it experiences an increase in the price of its common stock.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of Revaluation Surplus

Any equity account maintained by a business entity that reports an increase in the value of the assets of the business entity having a capital nature is known as revaluation surplus.

Explanation for the correct option

Option (d) Under IFRS, a company records a revaluation surplus when it experiences an increase in the price of its common stock, is correct.

Reason: It is the correct option because an increase in the price of shares of a business entity is not reported as a revaluation surplus by the business entity. Instead, a revaluation surplus includes an increase in the price of the business entity's assets.

Explanation for the incorrect options

The explanation for options (a) and (b): Business entities reporting under IFRS or GAAP are not allowed to recognize and record profit from any transaction that involves their shares. Therefore, the statements in (a) and (b) are true.

(c) Yes, a business entity reporting financial information under IFRS is required to prepare the statement of stockholder’s equity. This statement includes retained earnings, net income, and a cash dividend.