THE STATEMENT OF

COMPREHENSIVE INCOME
Basic Concepts & Definition of Terms

• The Statement of Comprehensive Income presents information on the financial performance of an

enterprise for a given reporting period.
• Per IAS 1, Presentation of Financial Statements, requires an entity to present a statement of
comprehensive income , showing all income and expenses during a reporting period in either of the 2
formats:
• Single statement that is divided into 2 parts which presents the profit or loss and the other
comprehensive income, and
• Two statements: an income statement that presents items forming part of profit or loss and a
statement of comprehensive income which starts with profit or loss as shown in the income
statement and an enumeration of the items forming part of the other comprehensive income.
Basic Concepts & Definition of Terms

Comprehensive Income – is defined as change in equity arising from transactions other than those with
owners. Comprehensive income therefore, excludes contribution from owners and distributions to owners.
• Comprehensive income is composed of 2 components:
1. Profit or loss measured as the difference between income and expenses reported in the
conventional income statement and
2. Other comprehensive income consisting mainly of unrealized items of gains and losses that are
expected to reverse over time.
Approaches to Measurement of Profit

1. Capital Maintenance Approach – measures profit or net income as the excess of ending
capital over the beginning capital, after excluding the effects of transactions with owners.
The IASB’s Conceptual Framework presents two concepts of capital maintenance,
namely:
a. Financial Capital Maintenance Concept
b. Physical Capital Maintenance Concept
2. Transaction Approach – profit is measured as the difference between the total income
and total expenses for a given reporting period, based on recorded transactions of the
enterprise.
 Elements of Performance

1. Income – is defined in the Conceptual Framework as increases in economic benefits during the
reporting 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 equity participants.
2. Expenses – are decreases in economic benefits during the reporting 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 equity participants. There are three bases for recognition of expenses
namely:
a. Associating cause and effect
b. Systematic and rational allocation
c. Immediate recognition
 Revenue Recognition Principles

• Revenue is generally recognized under accrual accounting, at the point when goods ae
delivered or when services are rendered because this is the point where the earning
process is complete and exchange has taken place.
• However, when performance obligation is to be met by the entity over a period of time,
the amount of transaction price is allocated as revenue over the period when performance
obligation is proportionately satisfied. IFRS 15 provides criteria and enumerates the
detailed process in the recognition of revenue from contracts with customers.
Revenue Recognition Principle Under IFRS 15
- Example

Antonio Service Company offers warranty contracts for computer unit it sells. The warranty
contracts cover a two-year period. The package of the computer with the warranty contract sells
for a total consideration of P28,000 that includes a price for the contract for P750. If the
customer opts not to buy the warranty, the computer unit is sold for P27,250 each. Antonio’s
past experience shows that of the total pesos spent for repairs in warranty contracts, 40% is
incurred evenly during the first warranty year and 60% evenly during the second warranty year.
During 2020, Antonio sold 1,000 packages of computer units and warranty contracts. Cost of
servicing the units (direct labor, materials, etc.) during 2020 amounted to P80,000.
Required: Prepare the journal entries for the foregoing transactions.
 Solution – Journal Entries

Cash/Accounts Receivable 28,000,000

Unearned Revenue from Warranty Contracts 750,000
Sales 27,250,000

To record the sales of the package (computer unit &

warranty contracts.
Cost of Warranty Contracts 80,000
Cash, Materials, etc. 80,000

To record the costs incurred.

Unearned Revenue from Warranty Contracts 150,000
Revenue from Warranty Contracts (750,000 x ½ x 40%) 150,000

To record the revenue for the period.

 Special Revenue Recognition Principle

• The end of production method also recognizes revenue before the actual sale of goods. This method is
advocated for certain metals and farm products with immediate marketability as assured prices.
• Agricultural produce which are harvested products of biological assets, are also initially recognized as
revenues at the date of harvest at fair value less cost to sell.
• When the collectability of the sales price is not reasonably assured and when the sales price of the goods
is significant in amount and collectible over an extended period of time, revenue is recognized by using
also:
a. Installment Method
b. Cost Recovery Method
• These 2 methods are not in accordance with IFRS and shall not be applied for financial reporting purposes. They
are, however, accepted for tax purposes, provided certain conditions are met.
 The Concept of Comprehensive Income

• The Revised IAS 1 broadens the information presented for the financial performance of an entity. The
conventional income statement, which shows only the profit for the period, has been expanded into a statement
of comprehensive income.
• Items that meet the definition of income and expenses but are excluded from profit or loss are called other
comprehensive income. The components include (par.7, IAS 1):

1. Changes in revaluation surplus 4. Unrealized gains and losses during the

period from FVOCI investments
2. Actuarial gains and losses on defined benefit 5. The effective portion of gains and losses on
plans hedging instruments in a cash flow hedge.
3. Gains and losses from translation of financial
statements of foreign operations
Information to be Presented on the Face of the
Statement of Comprehensive Income

• As a minimum, the face of the statement of comprehensive income shall include line items
that present the amounts for the period (paragraph 82, IAS 1).
• When required by another Standard or when presentation of the enterprise’s financial
performance is necessary, additional line items, headings and sub-totals may be included on
the face of the statement of comprehensive income.
 Presentation of Expenses

IAS 1 requires an entity to present an analysis of expenses in profit or loss section of the
statement of comprehensive income using a classification based on either :
• The nature of expenses or
• The function of expenses within the entity
• Nature of Expense Method – presents expenses based on nature, shows expenses as
purchases, salaries and wages, depreciation, utilities and other operating expenses. There is
no need to re-allocate expenses based on their function to the entity.
 Presentation of Expenses

• Function of Expense Method – is also referred as the cost of sales method. Under this presentation,
expenses are classified according to their function in the enterprise operations. Expenses are classified as:
a. Cost of Sales
b. Distribution or selling expenses
c. General or administrative expenses
d. Other expenses
• The function of expense method provides more relevant information to users than the classification of expenses by
nature, but the allocation of costs to functions can be arbitrary and involves considerable judgment (paragraph 103,
IAS 1).
Finance Costs – should be presented as a separate line item in the profit or loss regardless of the method of
presenting the expenses in the statement of comprehensive income. (e.g. interest expense (paid and accrued),
discounts lost on merchandise purchases, discounts lost on purchases of other non-current assets, amortization
of discounts on long-term debts and other costs ancillary to borrowing.
 Accounting for Discontinued Operations

A Discontinued Operation is a component of an entity that either has been disposed of, or is classified as
held for sale, and
• Represents a separate major line of business or geographical area of operations,
• Is part of a single coordinated plan to dispose of a separate major line of business or geographical area of
operations, or
• Is a subsidiary acquired exclusively with a view to resale.
• A component of an entity comprises operations and cash flows that can be clearly distinguished
operationally and for financial reporting purposes, from the rest of the entity. In other words, a
component of an entity will have been a cash generating unit while being held for use. Thus a
discontinued operation may be segment, a reporting unit, a subsidiary, or an asset group.
Accounting for Discontinued Operations

Examples of Discontinued Operations:

• Selling by a diversified entity of a major division that represents the entity’s only activities
in the electronics industry.
• Selling by a meat packing entity of controlling interest in a furniture entity. All other
operations of the entity are in the meat packing business.
• Selling by a communications entity of all its radio stations. The entity’s remaining
activities are television stations and a publishing house.
• A conglomerate is engaged in commodity business, real estate, manufacturing and
construction business . Selling of any of the four businesses is a discontinue operation.
Accounting for Discontinued Operations

Examples which are not discontinued operation:

• Phasing out of product line within a product group.
• Shifting of production or marketing activities for a particular line of business from one
location to another.
• Closing of a facility, factory or branch to achieve productivity improvement or other cost
saving.
Accounting for Discontinued Operations

• Based on IFRS 5, a component is classified as discontinued operation at the date the entity has
disposed of the operation of the component, or at the date the component meets the
criteria to be classified as held for sale.
• A component is classified as held for sale if it meets the following criteria:
1. Its carrying amount (assets and liabilities) will be recovered principally through a sale
transaction rather than through continuing use: and
2. The assets must be available for immediate sale in their present condition and their sale
must be highly probable.
 Accounting for Discontinued Operations

Recognition & Measurement:

• PFRS 5, paragraph 15, provides that an entity shall measure a noncurrent asset or disposal group
classified as held for sale at the lower of its carrying amount or fair value less cost to sell.
• PFRS 5, paragraph 25, further provides that a noncurrent asset classified as held for sale shall not be
depreciated.
• An enterprise should apply the principles of recognition and measurement that are set out
in IAS 36 Impairment of Assets and IAS 37, Provisions, Contingent Liabilities and
Contingent Assets for the purpose of deciding when and how to recognize and measure
the changes In assets and liabilities and the income, expense, and cash flows relating to a
discontinued operation.
 Accounting for Discontinued Operations

Recognition & Measurement:

• Expenses directly resulting from discontinuance of the segment such as employees
termination costs and other disposal costs are reported under discontinued operations.
Similarly, an impairment loss is recognized before the actual sale of the discontinued
segment if, at the end of the reporting period (balance sheet date), the net recoverable
value of the segment’s assets is lower that their carrying values.
Accounting for Discontinued Operations

Presentation of Discontinued Operations in the Statement of Comprehensive Income:

• In presenting discontinued operations, an entity shall disclose a single amount comprising
the total of the:
1. Post-tax profit or loss of the discontinued operations; and
2. Post-tax gain or loss recognized on the measurement to fair value less costs to sell or on
the disposal of the assets or disposal groups constituting the discontinued operations.