(Intermediate Accounting 3)

LECTURE AID

2020

ZEUS VERNON B. MILLAN

Chapter 2 Statement of Comprehensive Income
Related standard: PAS 1 Presentation of Financial Statements

Learning Objectives
• Prepare a Statement of Profit or Loss and Other
Comprehensive Income.
• Give examples of items of other comprehensive income.
• State the acceptable methods of presenting items of income
and expenses.

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Statement of profit or loss and other comprehensive income

• An entity shall present all items of income and expense recognized

in a period:
1. in a single statement of profit or loss and other comprehensive
income; or
2. in two statements: (1) a statement displaying the profit or loss
section only (separate ‘statement of profit or loss’ or ‘income
statement’) and (2) a second statement beginning with profit or
loss and displaying components of other comprehensive income.

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Extraordinary items

• PAS 1 prohibits the presentation of any items of income or expense

as extraordinary items in the in the statement(s) presenting profit or
loss and other comprehensive income or in the notes.

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OTHER COMPREHENSIVE INCOME (OCI)
Other comprehensive income comprises items of income and
expenses including reclassification adjustments that are not
recognized in profit of loss as required or permitted by PFRS.
The components of “other comprehensive income” include the
following:
1. Unrealized gain or loss on equity investment measured at
fair value through other comprehensive income
2. Unrealized gain or loss on debt investment measured at fair
value through other comprehensive income
3. Gain or loss from transactions of he financial statements of a
foreign operations
4. Revaluation surplus during the year
5. Unrealized gain or loss from derivative contracts designated as
cash flow hedge
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6. “Remeasurements” of defined benefit plan, including actuarial
gain or loss
7. Change in fair value attributable to credit risk of a financial
liability designated at fair value through profit or loss

Presentation of other comprehensive income

PAS1, paragraph 82A, provides that the statement of
comprehensive income shall present line items for amounts of
other comprehensive income during the period classified by
nature.
The line items for amounts of OCI shall be grouped as follows:
a. OCI that will be reclassified subsequently to profit or loss
when specific conditions are met.
b. OCI that will not be reclassified subsequently to profit or
loss but to retained earnings
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OCI that will be reclassified to profit or loss
a. Unrealized gain or loss on debt investment measured at fair
value through other comprehensive income.
b. Gain or loss from translating financial statements of a foreign
corporation
c. Unrealized gain or loss on derivative contracts designated as
cash flow hedge.

OCI that will be reclassified to retained earnings

d. Unrealized gain or loss on equity investment measured at
fair value through other comprehensive income
The Application Guidance of PFRS 9, paragraph B5.7.1,
provides that such unrealized gain or loss is reclassified to
retained earnings upon disposal of the investment

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b. Revaluation surplus during the year
The realization of the revaluation surplus is through retained
earnings.
c. Remeasurements of defined benefit plan, including actuarial
gain or loss
The remeasurements are not reclassified subsequently but are
permanently excluded from profit or loss.
However, the remeasurements may be transferred within
equity or retained earnings.
d. Change in fair value attributable to credit risk of a financial
liability designated at fair value through profit or loss
Such gain or loss from changes in fair value attributable to
credit risk or a financial liability may be transferred within
equity or retained earnings

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Other comprehensive income for the period

a. Changes in revaluation surplus

b. Unrealized gains and losses on investments in FVOCI securities
c. Re-measurements of the net defined benefit liability (asset)
d. Gains and losses arising from translating the financial statements
of a foreign operation
e. Effective portion of gains and losses on hedging instruments in a
cash flow hedge

• OCI may be presented either (a) net of tax or (b) gross of tax.

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Reclassification adjustments
• Reclassification adjustments are amounts reclassified to profit
or loss in the current period that were recognized in other
comprehensive income in the current or previous periods.

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Total comprehensive income

• Total comprehensive income comprises all components of

1. Profit or loss; and
2. Other comprehensive income.

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 Presentation of Expenses

1. Nature of expense method- 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 and presented as one item.
2. Function of expense method- expenses are classified
according to their function as part of cost of goods sold,
distribution costs, administrative expenses and other expense

• If an entity classifies expenses by function, it shall disclose additional

information on the nature of expenses
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Components of expense
a. Cost of goods sold or cost of sales
b. Distribution costs or selling expenses includes Salesmen’s
salaries, Salesmen’s commission, Travelling and marketing
expenses, Advertising and Publicity, Freight out, Depreciation
of delivery equipment and store equipment
c. Administrative expenses includes Doubtful accounts, Office
salaries, Expenses of general accounting and credit
department, Office supplies used, certain taxes, contribution,
Professional fees, Depreciation of office building and office
equipment, Amortization of intangible assets
d. Other expenses- are those expenses which are not directly
related to the selling and administrative function
e. Income tax expense

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Disclosure of dividends

• Dividends declared by an entity are disclosed either in the (a) notes

or (b) statement of changes in equity.

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Order of presentation of disclosures in the Notes

1. Statement of compliance with PFRSs;

2. Summary of significant accounting policies applied;
3. Supporting information for items presented in the other financial
statements; and
4. Other disclosures.

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Items of income and expense requiring disclosure
a. Write-down of inventory t net realizable vale and reversal of
such write-down
b. Write-down of property, pant, and equipment to r3coverable
amount and reversal of such write-down
c. Restructuring of the activities of an entity and reversal of any
provision for the cost of restructuring
d. Disposal of an item of property, plant and equipment
e. Disposal of investment
f. Discontinued operation
g. Litigation settlement
h. Other reversal of provision

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 APPLICATION OF CONCEPTS
 

PROBLEM 2: FOR CLASSROOM DISCUSSION

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 OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

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 END

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