Statement of Comprehensive Income

Statement of Comprehensive Income IFRS FRS Financial Reporting Recognized Gains Recognized Losses UK Accounting Standards Reporting Standards
The statement of comprehensive income, as defined by the IFRS and applicable FRS in the UK and Republic of Ireland, presents a complete picture of a company's financial performance beyond the traditional income statement.
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Statement of Comprehensive Income

Definition

The Statement of Comprehensive Income is a financial statement that provides a summary of a company’s profit or loss for a specific period, along with other comprehensive income, which includes items not realized in the income statement. This document is essential for illustrating both recognized gains and losses, ensuring transparency in financial reporting to stakeholders.

Examples

  1. ABC Ltd.: For the year ending 31st December 2022, ABC Ltd. reported a net profit of $200,000. Besides this, they had an unrealized gain of $25,000 from available-for-sale securities, making their total comprehensive income $225,000.

  2. XYZ Corporation: XYZ Corporation recorded a net loss of $150,000 for the fiscal year. Additionally, they had an exchange difference on the translation of foreign operations amounting to $10,000 loss, leading to a total comprehensive loss of $160,000.

Frequently Asked Questions

Q1: Is the statement of comprehensive income the same as the income statement?

  • A1: No. The income statement focuses on net income or loss while the statement of comprehensive income includes net income from the income statement and other comprehensive income items that bypass the income statement.

Q2: What components are included in other comprehensive income?

  • A2: Other comprehensive income includes items like unrealized gains and losses on available-for-sale securities, foreign currency translation adjustments, and changes in the value of defined benefit pension plans.

Q3: Why is the statement of comprehensive income important?

  • A3: This statement provides a more all-encompassing view of a company’s financial performance, capturing both realized and unrealized gains and losses that can affect a company’s financial health and decision-making.

Q4: Is it mandatory for companies to prepare a statement of comprehensive income?

  • A4: Yes, under International Financial Reporting Standards (IFRS) and Financial Reporting Standards (FRS) applicable in the UK and Republic of Ireland, companies are required to present a statement of comprehensive income.

Q5: How frequently should a statement of comprehensive income be prepared?

  • A5: This statement is typically prepared on an annual basis, but companies may also prepare it quarterly or semi-annually depending on their reporting requirements.
  1. Income Statement: A financial statement that reports a company’s financial performance over a specific accounting period, detailing revenue, expenses, and profits or losses.
  2. Other Comprehensive Income (OCI): Components of comprehensive income that are excluded from net income, such as foreign currency translation adjustments and unrealized gains and losses on certain investments.
  3. International Financial Reporting Standards (IFRS): A set of accounting standards developed by the International Accounting Standards Board (IASB) that apply globally.
  4. Financial Reporting Standard (FRS): Standards set specifically within the UK and Republic of Ireland detailing the required practices in financial reporting.
  5. Recognized Gains and Losses: Gains and losses that are acknowledged in financial statements within the reporting period.

Online References

  1. IFRS - International Financial Reporting Standards
  2. Financial Reporting Council - FRS
  3. Understanding Financial Statements: Comprehensive Income

Suggested Books for Further Studies

  1. “Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield
  2. “Financial Accounting and Reporting” by Barry Elliott and Jamie Elliott
  3. “IFRS: A Quick Reference Guide” by Robert Kirk
  4. “Accounting Principles” by Jerry J. Weygandt, Paul D. Kimmel, and Donald E. Kieso
  5. “International Financial Reporting: A Practical Guide” by Alan Melville

Accounting Basics: “Statement of Comprehensive Income” Fundamentals Quiz

### Which elements are included in the Statement of Comprehensive Income? - [ ] Only net profit or loss - [x] Both net income and other comprehensive income items - [ ] Only unrealized gains and losses - [ ] Only non-operating income > **Explanation:** The Statement of Comprehensive Income includes both net income from the income statement and other comprehensive income items, providing a total measure of comprehensive income. ### What is the primary difference between the income statement and the statement of comprehensive income? - [x] The statement of comprehensive income includes other comprehensive income items - [ ] The income statement includes other comprehensive income items - [ ] The income statement is not required under IFRS - [ ] No significant difference between the two statements > **Explanation:** The key difference is that the statement of comprehensive income includes other comprehensive income items while the income statement only reports net income. ### Which of the following is NOT typically included in other comprehensive income? - [ ] Unrealized gains on available-for-sale securities - [ ] Foreign currency translation adjustments - [x] Profit from sales revenue - [ ] Actuarial gains and losses from pension plans > **Explanation:** Profit from sales revenue is included in the income statement, not in other comprehensive income. ### How often is the statement of comprehensive income prepared? - [ ] Weekly - [ ] Monthly - [ ] Anytime at company discretion - [x] Annually or quarterly depending on reporting requirements > **Explanation:** The statement of comprehensive income is typically prepared annually or quarterly, based on reporting requirements. ### Who sets the standards for the statement of comprehensive income? - [x] International Accounting Standards Board (IASB) - [ ] US Securities and Exchange Commission (SEC) - [ ] American Institute of CPAs (AICPA) - [ ] Financial Conduct Authority (FCA) > **Explanation:** The International Accounting Standards Board (IASB) sets the standards through IFRS. ### Is it mandatory for companies in the UK to prepare a statement of comprehensive income? - [x] Yes, according to FRS and IFRS requirements - [ ] No, it is optional - [ ] Only for publicly traded companies - [ ] Only if there are unrealized gains or losses > **Explanation:** It is mandatory for companies in the UK to prepare the statement according to FRS and IFRS. ### An unrealized gain from which asset would be included in other comprehensive income? - [ ] Office Equipment - [x] Available-for-sale securities - [ ] Cash - [ ] Inventory > **Explanation:** Unrealized gains from available-for-sale securities are included in other comprehensive income. ### What aspect is primarily captured through other comprehensive income? - [ ] Capital investments - [ ] Dividends paid - [x] Revaluation of assets that bypass current period profit or loss - [ ] Cash flow activities > **Explanation:** Other comprehensive income captures revaluation of certain assets and liabilities that bypass the income statement. ### Which amendment introduced the requirement to prepare a comprehensive income statement? - [x] IFRS 9 - [ ] IFRS 10 - [ ] FRS 20 - [ ] IAS 1 revision > **Explanation:** The IFRS 9 amendment introduced enhanced requirements for including more comprehensive income reporting. ### How does the statement of comprehensive income inform stakeholders? - [x] It provides a complete view of the company's financial health beyond realized profits or losses. - [ ] It only shows the cash flows for a particular period. - [ ] It lists only the net income from core business operations. - [ ] It does not provide critical financial data. > **Explanation:** This statement informs stakeholders by presenting a more complete view of the company's financial health, including unrealized gains and losses.

Thank you for diving deep into the statement of comprehensive income and testing your knowledge with our quiz! Keep expanding your understanding of financial reporting standards!

Tuesday, August 6, 2024
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