Comprehensive Income

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Comprehensive Income.  This is sum of income from continuing operations, discontinued operations, extraordinary items, and other comprehensive income.  Notice that comprehensive income does not include transactions with the owners or shareholders.  Comprehensive income can also be computed by determining the change in the equity excluding the distribution (dividends) and investments from the shareholders.

Other comprehensive income.  Other comprehensive income are those economic transactions that are not included in the computation of net income.  Common examples are as follow:

  • Changes in pension asset (or liability).  These are the net increase or decrease in the pension asset (or liability)
  • Unrealized gains and losses.  These are mostly the unrealized holding gains and losses on available-for-sale investments.
  • Changes in foreign currency rates.  There are foreign currency translation adjustments and gains and losses on foreign currency transactions.
  • Effects of cash flow hedges.  These are the effective portion of the foreign currency hedge.

Financial Statement Presentation.  Comprehensive income including its itemized components must be included in the financial statements.  There are three acceptable methods.

  • Income statement.  This approach is to include the comprehensive income including its itemized components in the income statement.  It is to be presented just below the income and the total will be called comprehensive income.
  • Separate statement.  This approach is to present the comprehensive income in a separate statement called “Statement of Comprehensive Income”.
  • Statement of Owners Equity.  This approach includes the comprehensive income as part of the statement of changes in owners equity. 

Comprehensive income is allowed to be presented net of tax or at gross amount and including the tax effect on the income tax item.

The tax effects (i.e., income tax expense, income tax benefit) of each of the comprehensive income components may be opted to be shown on the face of the financial statement or on the notes to the financial statements.

Read more CPA Review notes in Bookeepedia.

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