STATEMENT OF COMPREHENSIVE INCOME

COMPREHENSIVE INCOME
Comprehensive income is the change in equity during a period resulting from
transactions and other events, other than changes resulting from transactions with
owners in their capacity as owners.
Comprehensive income includes the following:
1. Components of profit or loss
2. Components of other comprehensive income

PROFIT OR LOSS
Profit or loss is the total of income less expenses, excluding the components of
other comprehensive income.
This is the "bottom line" in the traditional income statement.
An entity may use other terms to describe this amount as long as the meaning is
clear.
For example, an entity may use "net income" or "net loss" to describe profit or loss.

OTHER COMPREHENSIVE INCOME (OCI)

Other comprehensive income comprises items of income and expense including
reclassification adjustments that are not recognized in profit or loss as required or
permitted by Philippine Financial Reporting Standards.
Components of OCI that will be reclassified subsequently to profit or loss include
the following:
a. Gain or loss from translating financial statements of a foreign operation
b. Unrealized gain or loss on derivative contracts designated as cash flow hedge
c. Unrealized gain or loss on debt investment measured at fair value through
other comprehensive income
Components of OCI that will be reclassified subsequently to retained earnings
include the following:
a. Unrealized gain or loss on equity investment measured at fair value through
other comprehensive income
b. Change in revaluation surplus
c. Remeasurements of defined benefit plan
d. Change in fair value attributable to credit risk of financial liability designated
at fair value through profit or loss

LINE ITEMS IN THE STATEMENT OF COMPREHENSIVE INCOME

a. Revenue
b. Gain or loss from derecognition of financial asset measured at amortized cost as
required by PFRS 9
c. Finance cost
d. Share of income or loss of associate and joint venture accounted for using the
equity method
e. Income tax expense
f. A single amount for discontinued operation
g. Profit or loss for the period
h. Total other comprehensive income
i. Comprehensive income for the period

The following items shall be disclosed in the statement of comprehensive income

as allocation of profit or loss and other comprehensive income for the period:
a. Profit or loss attributable to noncontrolling interest and owners of the parent.
b. Comprehensive income attributable to noncontrolling interest and owners of the
parent.
PAS 1, paragraph 85, provides that an entity shall present additional line items,
headings and subtotals in the statement of comprehensive income or separate
income statement when such presentation is relevant to an understanding of the
financial performance.

FORMS OF PRESENTING THE INCOME STATEMENT

1. Functional presentation
The functional presentation is the traditional and common form of income
statement
The functional presentation is also known as the cost of goods sold method.
This form classifies expenses according to their function as part of cost of goods
sold, distribution costs and administrative activities.
An entity classifying expenses by function shall disclose additional information
on the nature of expenses, including depreciation, amortization expense and
employee benefit expense.

2. Natural presentation
The natural presentation is referred to as the nature of expense method.
Under this form, expenses are aggregated according to their nature and not
allocated among the various functions within the entity.
The expenses which are of the same nature are grouped, or aggregated as one
item, for example, depreciation, purchases of raw materials, transport costs,
employee benefits and advertising costs.
NOTE: PAS 1 DOES NOT PRESCRIBE ANY FORMAT
Paragraph 105 simply states that "because each method of presentation has merit
for different types of entities, management is required to select the presentation
that is reliable and more relevant".
STATEMENT OF CHANGES IN EQUITY

The statement of changes in equity is a basic statement that shows the movements
in the elements or components of the shareholders’ equity.
The holders of instruments classified as equity are simply known as "owners"

COMPONENTS OF THE STATEMENT OF CHANGES IN EQUITY

a. Comprehensive income for the period
b. For each component of equity, the effects of changes in accounting policies
and corrections of errors
c. For each component of equity, a reconciliation between the carrying
amount at the beginning and end of the period, separately disclosing
changes from:
1. Profit or loss
2. Each item of other comprehensive income
3. Transactions with owners in their capacity as owners showing separately
contributions by and distributions to owners

STATEMENT OF RETAINED EARNINGS

The statement of retained earnings shows the changes affecting directly the
retained earnings and relates the income statement to the statement of financial
position.
The important data affecting the retained earnings that should be clearly
disclosed in the statement of retained earnings are:
a. Profit or loss for the period
b. Prior period errors
c. Dividends declared and paid to shareholders
d. Effect of change in accounting policy
e. Appropriation of retained earnings
The statement of retained earnings is no longer a required basic statement but it
is a part of the statement of changes in equity.

APPROACHES OF DETERMINING NET INCOME

The transaction approach is the traditional approach of determining net income.
The capital maintenance approach is another approach of determining net
income.
The capital maintenance approach or net assets approach means that net income
occurs only after the capital used from the beginning of the period is maintained.
Under this approach, net income is the amount an entity can distribute to the
owners and be as “well-off” at the end of the year as at the beginning.
This approach involves two variations, namely financial capital and physical
capital.

1. FINANCIAL CAPITAL
Financial capital is the monetary amount of the net assets contributed by
shareholders and the increase in net assets resulting from earnings retained by the
entity.
Financial capital is invested money or invested purchasing power and
synonymous with net assets or equity of the entity.
Actually, financial capital is the traditional concept based on historical cost.
The financial capital concept is adopted by most entities.

2. PHYSICAL CAPITAL
Physical capital is the quantitative measure of the physical productive capacity
to produce goods and services.
 The physical productive capacity may be based on, for example, units of output
per day or physical capacity of productive assets to produce goods and services.
Productive assets are valued at current cost, rather than historical cost.
Productive assets include inventories and property, plant and equipment.
The current costs for these productive assets must be maintained in order that
physical capital is also maintained. Accordingly, physical capital is equal to the net
assets of the entity expressed in terms of current cost.