April 21, 2010
Filed under Financial Accounting
The statement of comprehensive income illustrates the financial performance and results of operations of a particular company or entity for a period of time. It is one of the five basic components of a complete set of financial statements, the other four being the statement of financial position, statement of cash flows, statement of changes in equity, and notes to financial statements. The statement of comprehensive income shows the comprehensive income for the period. Comprehensive income for the period includes profit or loss for that period plus other comprehensive income recognized in that period. Comprehensive income as defined by the Financial Accounting Standards Board (FASB), is the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.
Based on International Accounting Standard (IAS) 1 as amended, issued by the International Accounting Standard Board (IASB), the comprehensive income consists of changes in revaluation surplus; actuarial gains and losses on defined benefit plans recognised in accordance with IAS 19; gains and losses arising from translating the financial statements of a foreign operation; gains and losses on remeasuring available-for-sale financial assets, and the effective portion of gains and losses on hedging instruments in a cash flow hedge. These items are not part of the net profit or net income, but included in the statement to give its users the clear view of an entity’s results of operations, and the operating and financial events that have changed the worth of an owner’s interest in a business.
The components of statement of comprehensive income include the following items:
- finance costs
- share of the profit or loss of associates and joint ventures accounted for using the equity method
- tax expense
- a single amount comprising the total of (i) the post-tax profit or loss of discontinued operations and (ii) the post-tax gain or loss recognised on the disposal of the assets or disposal group(s) constituting the discontinued operation
- profit or loss
- each component of other comprehensive income classified by nature
- share of the other comprehensive income of associates and joint ventures accounted for using the equity method
- total comprehensive income
The following items must also be disclosed in the statement of comprehensive income as allocations for the period:
- profit or loss for the period attributable to non-controlling interests and owners of the parent
- total comprehensive income attributable to non-controlling interests and owners of the parent
Aside from the above items, additional line items may be needed to fairly present the entity’s results of operations. Extraordinary items are not already permitted to be presented in the statement of comprehensive income.
By reading the statement of comprehensive income, the user can assess the revenues, cost, expenses, other income, and other comprehensive income of a business enterprise for the accounting period ended. The net profit or total comprehensive income of a particular company indicates its performance and how its operations went. It answers the question whether if a business incurs a comprehensive loss or comprehensive income for the period. This statement can be very important for owners, investors, creditors and even the estate or government in analyzing profitability, return on equity, return on investment, ability to pay interests on debts, and income taxes.