Statement of Comprehensive Income

Learning objectives:
1. Give examples of items of comprehensive income
2. State the acceptable methods of presenting items of income and expenses.
3. Prepare a Statement of Profit or Loss and Comprehensive Income
Statement of Profit or Loss and Other Comprehensive Income (Presentation)
• Either:
a. A single statement (statement of comprehensive income); or
b. Two statements
• PAS 1 requires an entity to present information on the following:
a. Profit or loss (Income Statement);
b. Other comprehensive income (OCI); and
c. Comprehensive income
These presentations have the following basic formats:
Single Statement Presentation
Statement of Profit or Loss and Other Comprehensive Income
Revenues P 100
Expenses (80)
Profit or Loss 20
Other Comprehensive Income 10
Comprehensive Income P 30

Two – Statement Presentation

1. Statement of Profit or Loss/ Income Statement 2. Statement of Other Comprehensive Income
Revenues P 100 Profit or Loss 20
Expenses (80) Other Comprehensive Income 10
Profit or Loss 20 Comprehensive Income P 30

Profit or loss (Income Statement)

• Income and expenses are usually recognized in profit or loss unless:
a. They are items of other comprehensive income (OCI); or
b. They are required by other PFRSs to be recognized outside of profit or loss.
• The following are NOT included in determining the profit or loss for the period:
1. Correction of prior period error
2. Change in accounting policy
3. Other comprehensive income
4. Transaction with owners (e.g. issuance of share capital, declaration of dividends, and the like)

Elements of the Income Statement:

1. INCOME – Increases in economic benefits during the accounting period in the form of
 inflows or enhancements of assets or
 decreases of liabilities
that result in increases in equity, other than those relating to contributions from shareholders.

INCOME includes both revenues and gains.

 Revenues - ordinary activities of a company
 Gains - may or may not arise from ordinary activities.
Revenue Accounts: Sales revenue, Fee revenue, Interest revenue, Dividend revenue, Rent revenue
Gain Accounts: Gains on the sale of long-term assets, Unrealized gains on trading securities.

2. EXPENSES – Decreases in economic benefits during the accounting period in the form of
 outflows or depletions of assets or
 incurrences of liabilities
that result in decreases in equity, other than those relating to distributions to shareholders.

EXPENSES include both expenses and losses.

 Expenses - ordinary activities of a company
 Losses - may or may not arise from ordinary activities.

Expense Accounts: Cost of goods sold, Depreciation expense, Interest expense, Rent expense,
Salary expense
Loss Accounts: Losses on restructuring charges, Losses on the sale of long-term assets, Unrealized
losses on trading securities.

FORMAT OF THE INCOME STATEMENT

Intermediate Components - Companies Illustration:
generally present some or all of these sections Includes all of the major items in previous list, except for
and totals within the income statement. discontinued operations.

1. Sales or Revenue
2. Cost of Goods Sold
Gross Profit
3. Selling Expenses
4. Administrative or General Expenses
5. Other Income and Expense
Income from Operations
6. Financing Costs
Income Before Income Tax
7. Income Tax
Income from continuing Operations
8. Discontinued Operations
Net Income
9. Non-Controlling Interest
10. Earnings Per Share
CONDENSED INCOME STATEMENT
More representative of the type found in practice. Company prepares supplementary schedules
to support the totals:

REPORTING WITHIN THE INCOME STATEMENT

Gross Profit
 Computed by deducting cost of goods sold from net sales.
 Provides a useful number for evaluating performance and predicting future earnings.
Unusual or incidental revenues are disclosed in other income and expense.

Income from Operations

 Determined by deducting selling and administrative expenses as well as other income and
expense from gross profit.
 Highlights items that affect regular business activities.
 Used to predict the amount, timing, and uncertainty of future cash flows.

Expense Classification
Nature Function
1. Cost of materials used 1. Employee benefits
2. Direct labor incurred 2. Depreciation expense
3. Delivery expense 3. Amortization expense
4. Advertising expense 4. Cost of goods sold
5. Selling expenses
6. Administrative expenses
Illustration: The firm of Telaris Co. performs audit, tax, and consulting services. It has the following
revenues and expenses.

Nature-of-Expense Approach

Function-of-Expense Approach

The function-of-expense method is generally used in practice although many companies believe
both approaches have merit.
Gains and Losses
ILLUSTRATION 4-7 Number of Unusual Items Reported in a Recent Year by 500 Large Companies

IASB takes the position that both:

1. revenues and expenses and
2. other income and expense
should be reported as part of income from operations.

NOTE: Companies can provide additional line items, headings, and subtotals when such presentation
is relevant to an understanding of the entity’s financial performance.

Additional items that may need disclosure:

1. Losses on write-downs of inventories to net realizable value or of property, plant, and equipment
to recoverable amount, as well as reversals of such write-downs.
2. Losses on restructurings of the activities and reversals of any provisions for the costs of
restructuring.
3. Gains or losses on the disposal of items of property, plant, and, equipment or investments.
4. Litigation settlements.
5. Other reversals of liabilities.

Income before Income Tax

ILLUSTRATION 4-8:
Presentation of Finance Costs
Financing costs must be
reported on the income
statement.
Allocation to Non-Controlling Interest
When a company prepares a Consolidated Income Statement, IFRS requires that net income be
allocated to the controlling and non-controlling interest. This allocation is reported at the bottom of
the income statement, after net income.

ILLUSTRATION 4-9 Presentation of Non-Controlling Interest:

BE4-3: Presented below is some financial information related to Volaire Group. Compute the following:

Other Income and Expense

Revenues €800,000 €800,000
Income from continuing operations 100,000
Comprehensive income 120,000
Net income 90,000
Income from operations 220,000 (220,000)
Selling and administrative expenses 500,000 (500,000)
Income before income tax 200,000 ________
€80,000

Financing Costs
Revenues €800,000
Income from continuing operations 100,000
Comprehensive income 120,000
Net income 90,000
Income from operations 220,000 220,000
Selling and administrative expenses 500,000
Income before income tax 200,000 (200,000)
€20,000

Income Tax
Revenues €800,000
Income from continuing operations 100,000 (100,000)
Comprehensive income 120,000
Net income 90,000
Income from operations 220,000
Selling and administrative expenses 500,000
Income before income tax 200,000 200,000
€100,000
 Discontinued Operations
Revenues €800,000
Income from continuing operations 100,000 100,000
Comprehensive income 120,000
Net income 90,000 (90,000)
Income from operations 220,000
Selling and administrative expenses 500,000
Income before income tax 200,000 _______
€10,000

Other Comprehensive Income

Revenues €800,000
Income from continuing operations 100,000
Comprehensive income 120,000 120,000
Net income 90,000 (90,000)
Income from operations 220,000
Selling and administrative expenses 500,000
Income before income tax 200,000 _______
€30,000

Other Comprehensive Income (OCI)

 Comprises items of income and expense (including reclassification adjustments) that are NOT
recognized in profit or loss as required or permitted by other PFRSs (PAS 1.7)

Components of OCI
recognized in profit or loss as required or permitted by other PFRSS." (PAS 1.7)

The components of other comprehensive income include the following:

1. Changes in revaluation surplus;
2. Remeasurements of the net defined benefit liability (asset); C. Gains and losses on investments
designated or measured at fair value through other comprehensive income (FVOCI);
3. Gains and losses arising from translating the financial statements of a foreign operation;
4. Effective portion of gains and losses on hedging instruments in a cash flow hedge;
5. Changes in fair value of a financial liability designated at fair value through profit or loss (FVPL)
that are attributable to changes in credit risk;
6. Changes in the time value of option when the option's intrinsic value and time value are
separated and only the changes in the intrinsic value is designated as the hedging instrument;
and
7. Changes in the value of the forward elements of forward contracts when separating the forward
element and spot element of a forward contract and designating as the hedging instrument only
the changes in the spot element, and changes in the value of the foreign currency basis spread
of a financial instrument when excluding it from the designation of that financial instrument as
the hedging instrument. (PAS 1.7)
Reclassification Adjustments (included in OCI)
• “amounts reclassified to profit or loss in the current period that were recognized in other
comprehensive income in the current or previous periods” (PAS 1.7)

• Arise [for example] on:

1. disposal of a foreign operation;
2. derecognition of debt instruments measured at FVOCI; or
3. when a cash flow hedge becomes ineffective or affects profit or loss

NOTE:
• A reclassification adjustment for a gain is a deduction in OCI and an addition to profit or loss. –
vice versa for a loss
• Reclassification adjustment do not arise on changes in:
1. changes in revaluation surplus;
2. derecognition of equity instruments designated at FVOCI; and
3. remeasurements of the net defined benefit liability or asset
4. cumulative gains or losses in equity [on these items] are transferred directly to retained
earnings

Total Comprehensive Income

• “the change in equity during a period resulting from transactions and other events, other than
those changes resulting from transactions with owners in their capacity as owners” (PAS 1.7)
• The sum of profit or loss and other comprehensive income (OCI)

Illustration 1:
The following items were presented for the purpose of determining comprehensive income:

Profit for the year 1,000

Increase in revaluation surplus 500
Remeasurements of the net defined benefit liability (asset) (100)
Net change in translation of foreign operation (200)
Dividends declared (50)
Stock rights 150

Requirements: (a) OCI and (b) comprehensive income

Solution:
Profit for the year 1,000
Other comprehensive income:
Revaluation gain 500
Remeasurement of the net defined benefit liability (asset) (100)
Translation loss on foreign operation (200)
Total other comprehensive income (a) 200
Total comprehensive income (b) 1,200
Illustration 2: Sample Statement of Comprehensive Income
(Single – statement presentation/Function of Expense Method)

NOTES 20X2 20X0

Revenue 700,000 500,000
Cost of Sales (200,000) (120,000)
Gross Profit 500,000 380,000
Other Income 22,000 12,000
Distribution costs (48,000) (39,000)
Administrative Expense (92,000) (71,000)
Impairment of property, plant & equipment (10,000) -
Other expenses (6,000) (5,000)
Finance costs (15,000) (18,000)
Share in the profit of associates 35,000 30,000
Profit Before Tax 386,000 289,000
Income tax expense (86,000) (79,000)
Profit for the year from continuing operations 300,000 210,000
Loss for the year from discontinued operations - (10,000)
PROFIT FOR THE YEAR 300,000 200,000

Other Comprehensive Income, After Tax:

Items that will not be reclassified subsequently to profit or loss:

Gain on property revaluation - 23,000

Remeasurements of defined benefit plan (1,000) 2,000
(1,000) 25,000
Items that may be reclassified subsequently to profit or loss:
Gain on translation of foreign operations 53,000 20,000
Cash flow hedges (2,000) (5,000)
51,000 15,000
OTHER COMPREHENSIVE INCOME FOR THE YEAR 50,000 40,000

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 350,000 240,000

Note: The net other comprehensive income of P50,000 is carried to “reserves” or shown separately in
the statement of changes in equity.
Illustration 5: Total Comprehensive Income
The records of ABC Co. on December 31,20x1 showed the following information:

Sales 1,000,000
Sales Discounts 10,000
Cost of Sales 400,000
Distribution Costs 48,000
Administrative Costs 120,000
Casualty loss on typhoon 20,000
Dividends received from invested in FVPL 12,000
Dividends received from invested in associate 24,000
Share in the profit of an associate 36,000
Dividends declared and paid 14,000
Interest Expense 22,000
Unrealized gain on investments in FVPL 15,000
Unrealized gain on investments in equity instruments – FVOCI 19,000
Income Tax expense 150,000
Loss on revaluation 13,000
Remeasurements of the net defined benefit liability (assets) – Gain 11,000
Correction of understatement in depreciation in prior year 16,000
Translation adjustment of foreign operations-loss 4,000

Solution:

Sales 1,000,000
Sales Discounts (10,000)
Net Sales 990,000
Cost of Sales (400,000)
Gross Profit 590,000
Distribution Costs (48,000)
Administrative Costs (120,000)
Casualty loss on typhoon (20,000)
Interest Expense (22,000)
Profit before tax 443,000
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss:
Loss on revaluation (13,000)
Unrealized gain on investments in equity instruments – FVOCI 19,000
Remeasurements of defined benefit pension plans 11,000
17,000
Items that may be reclassified subsequently to profit or loss:
Loss on translation of foreign operation (4,000)
Other comprehensive income for the year 13,000
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 306,000
Illustration: Reconstruction of FS
1. ABC Co. reported profit after tax of P105,000. ABC’s income tax rate is 30%. Operating
expenses for the year were 15% of sales and 25% of cost of sales. Other expenses were 10% of
sales.

Requirement: Compute for sales.

Sales (100%) 1,000,000

Cost of sales (15% ÷ 25% = 60% x 1,000,000 (600,000)
Gross Profit 100% - 60% = 40% 400,000
Operating expenses (15% of 100 %) 15% x 1,000,000 (150,000)
Other expenses (10% of 100%) 10% x 1,000,000 (100,000)
Profit before tax 15% x 1,000,000 150,000
Income tax 30% x 150,000 (45,000)
Profit After Tax 105,000

Answer: P 1 million

2. ABC Co. has the following information on December 31, 20x1:

• Cost of sales is P130,000
• Operating expenses are 13% of sales and 20% of cost of sales
• Interest expense is 5% of sales
• Income tax rate is 30%. There were no temporary difference during the year.

Requirement: Profit for the year.

Cost ratio is derived from the percentage of operating

expenses over sales and cost of sales as follows:
Cost Ratio= 13% ÷ 20% 65%
Sales (130,000 ÷ 65%) 200,000
Cost of sales (130,000)
Gross Profit 70,000
Operating expenses (130,000 x 20%) (26,000)
Interest Expense (130,000 x 5%) (10,000)
Income before income tax 34,000
Income Tax (34,000 x 30%) (10,200)
Net Income/ Profit 23,800

Answer: P 23,800
Review Question
1. Separate line items in an analysis of expenses by nature include
a. Purchases of materials, transport costs, employee benefits, depreciation, extraordinary items
b. Purchases of materials, distribution costs, administrative costs, employee benefits,
depreciation, taxes.
c. Depreciation, purchases of materials, transport costs, employee benefits and advertising costs.
d. Cost of sales, administrative costs, transport costs and distribution costs

2. Other comprehensive income includes all of the following, except

a. Gain or loss arising from translating the financial statements of a foreign operation.
b. Gain or loss on remeasuring available for sale financial asset.
c. The effective portion of gain or loss on hedging instrument in a cash flow hedge.
d. Dividend paid to shareholders

3. It is the change in equity during a period resulting from transactions and other events, other
than those changes resulting from transactions with owners in their capacity as owners.
a. Profit or loss
b. Comprehensive income
c. Other comprehensive income
d. Share capital

4. The presentation and classification of items in the financial statements shall be retained
from one period to the next.
a. Consistency of presentation
b. Materiality
c. Aggregation
d. Comparability

5. In presenting a statement of financial position, an entity

a. Must make the current and noncurrent presentation distinction.
b. Must present assets and liabilities in order of liquidity.
c. Must choose either the current and noncurrent or the liquidity presentation formats, meaning
free choice of presentation format.
d. Must make the current and noncurrent presentation except when a presentation based on
liquidity provides information that is reliable and more relevant.