Overview
This lecture explains the comprehensive income statement, its components, presentation formats, common line items, and required disclosures according to financial reporting standards.
Comprehensive Income and Its Components
- Comprehensive income reflects changes in equity during a period not caused by owner transactions.
- It has two main components: profit or loss, and other comprehensive income (OCI).
- Profit or loss is total income minus expenses for the current period, excluding OCI.
- OCI includes income and expenses in the period, but not recognized in profit or loss as required by financial reporting standards.
Presentation Formats of Comprehensive Income Statement
- Two-statement approach: present income statement (profit or loss) then a separate statement of comprehensive income (adds/deducts OCI).
- Single-statement approach: present all components of profit or loss and OCI within one statement.
- Both formats are acceptable in general-purpose financial statements.
Sources of Income
- Sales of merchandise (net sales) for merchandising/manufacturing businesses.
- Rendering of services for service-based businesses (reported as revenue).
- Use of entity resources, e.g., rent, interest, royalties, investment income.
- Disposal of resources, e.g., gain from selling assets not part of inventory.
Components of Expenses
- Cost of goods sold (COGS) or cost of sales.
- Distribution/selling expenses (e.g., advertising, store rent).
- Administrative expenses (e.g., salaries of management and accountants).
- Other expenses (e.g., losses from asset sales not part of operations).
- Finance costs (interest, bank charges).
- Income tax expense.
Forms of Expense Presentation
- Functional presentation classifies expenses by function (COGS, selling, admin, finance).
- Natural presentation groups expenses by nature (e.g., salaries, depreciation) without splitting by function.
Common Line Items in Comprehensive Income Statement
- Revenue and other income.
- Gains/losses from recognition or reclassification of financial assets.
- Finance costs (e.g., interest).
- Share of income/loss from associates and joint ventures (equity method).
- Income tax expense.
- Single amount for discontinued operations.
- Profit or loss for the period.
- OCI and total comprehensive income.
Required Disclosures
- Disclose profit or loss attributable to non-controlling interests and owners of the parent.
- Disclose total comprehensive income attributable to non-controlling interests and owners of the parent.
Key Terms & Definitions
- Comprehensive Income — Change in equity not caused by owner transactions.
- Profit or Loss — Income minus expenses for the period, excluding OCI.
- Other Comprehensive Income (OCI) — Income/expenses for the period not recognized in profit or loss.
- Functional Presentation — Expenses classified by business function.
- Natural Presentation — Expenses grouped by type/nature.
- Non-controlling Interest — Share of equity in a subsidiary not owned by the parent company.
Action Items / Next Steps
- Review sample problems on comprehensive income statement preparation.
- Watch suggested video lectures for further examples and discussion.