LESSON 2- STATEMENT OF COMPREHENSIVE INCOME

COMPREHENSIVE INCOME

Comprehensive income is a statement of all income and expenses recognized

during a specified period. The statement includes revenue, finance costs, tax
expenses, discontinued operations, profit share and profit/loss.

Income Statement and Statement of Comprehensive are differentiated because IAS

1 gives two options to present the items of incomes and expenses recognized during
the period.
IAS 1 para 81 allows that all the items of income and expenses recognized in the
period:

• EITHER in a single statement i.e. Statement of Comprehensive Income;

• OR in two separate statements as follows:
o Income Statement: With components of profit and loss recognized. This
statement includes regular line items which in the language of IASs are
known as profit and loss items.
o Statement of other Comprehensive Income: This statement starts with the
profit or loss as calculated under Income statement and contains
components of other comprehensive income. Simply this statement
contains such line items which are not recognized in profit or loss and if
disclosed under Income Statement then it might mislead users of financial
statements as they may consider them as regular line items.
The components of other comprehensive income include:
1. changes in revaluation surplus (see IAS 16 Property, Plant and
Equipment and IAS 38 Intangible Assets);
2. actuarial gains and losses on defined benefit plans
3. gains and losses arising from translating the financial statements
of a foreign operation
4. gains and losses from investments in equity instruments
measured at fair value through other comprehensive income
5. the effective portion of gains and losses on hedging instruments
in a cash flow hedge (see IAS 39).

Presentation of Comprehensive Income (Valix, 2019)

1. Multiple Step or Two-Statement Approach
a. An income statement showing the components of profit or loss
b. A statement of comprehensive income beginning with profit or loss as shown in
the income statement plus or minus the components of other comprehensive
income
2. Single Step or Single Statement Approach
 This is the combined statement showing the components of profit or loss and
components of other comprehensive income in a single statement of
comprehensive income

ELEMENTS OF COMPREHENSIVE INCOME (VALIX, 2019)

1. Revenue- arises in the course of the ordinary regular activities of an entity and is
referred to by a variety of different names including Sales fees, and Service revenue.
Other income such as interest income, dividend income, royalties income or fees
and rent income and Gains on sales of assets like building, equipment etc
2. Expense- is defined as decrease in economic benefit during the accounting period
in the form of outflow or decrease in asset and increase in liability that results in
decrease in equity, other than distribution to equity participants (Defined under the
Conceptual Framework)
Expense- is outflow of future economic benefit that decreases equity, other than
distribution or dividend paid to owners.

Specifically, expenses include the following:

a. Cost of goods sold or cost of sales
b. Operating Expense
Distribution cost or selling expenses- constitute costs which are directly
related to selling, advertising and delivery of goods to customers
Distribution costs include:
a) Salesmen’s salaries
b) Sales commissions
c) Traveling and marketing expenses
d) Advertising and publicity expenses
e) Freight out
f) Depreciation of delivery equipment and store equipment
Administrative expenses – constitute cost of administering the business.
These ordinarily include all operating expenses not rated to selling and cost of
goods sold
Administrative expenses include:
a) Doubtful accounts or Bad debts accounts
b) Office salaries and expenses of general executives
c) Office supplies expense
d) Contributions to charity
e) Professional fees
f) Depreciation of office building and office equipment
g) Amortization of intangible assets
Finance Cost- expenses incurred from borrowing
a) Interest expense
 Other expenses – are those expenses which are not directly related to the
distribution and administrative function
Other expenses include:
a) Loss on sale of trading investment
b) Loss on sale of property plant and equipment
c) Loss on sale of non-current investment or long term investment
d) Loss on sale of intangible asset
e) Casualty loss from earthquake, typhoon, hurricane, tsunami, flood, fire,
storm surge and other natural disaster
Finance cost- expense for payment of Interest expense on bank loan, interest
expense on bonds payable
c. Income tax expense (30% of the net income before tax)

Illustrative example
Multiple Step or Two-Statement Approach

Masay Corporation
Income Statement
Year ended December 31, 2018

Note
Net sales revenue (1) 7,450,000
Cost of goods sold (2) (5,120,000)
Gross income 2,330,000
Other income (3) 210,000
Total income 2,540,000
Expenses:
Selling expenses (4) 830,000
Administrative expenses (5) 590,000
Other expense (6) 300,000 1,720,000
Income before tax 820,000
Income tax expense ( 320,000)
Net income 500,000

Note 1 – Net sales revenue

Sales 7,500,000
Sales returns and allowances ( 50,000)
Net sales revenue 7,450,000

Note 2 – Cost of goods sold

Finished goods – January 1 360,000

Purchases 5,060,000
Goods available for sale 5,420,000
Finished goods – December 31 ( 300,000)
Cost of goods sold 5,120,000

Note 3 – Other income

Gain from expropriation 100,000
Interest income 10,000
Gain on sale of equipment 100,000
210,000

Note 4 – Selling expenses

Sales salaries 400,000
Advertising 160,000
Depreciation – store equipment 70,000
Delivery expenses 200,000
Total 830,000

Note 5 – Administrative expenses

Office salaries 150,000
Depreciation – office equipment 40,000
Accounting and legal fees 150,000
Office expenses 250,000
Total 590,000

Note 6 – Other expense

Earthquake loss 300,000
 Masay Corporation
Statement of Comprehensive Income
Year ended December 31, 2018
Net Income P 500,000

Other Comprehensive Income :

Foreign currency translation gain P 150,000

Unrealized Loss on derivative contract

designated as Cashflow hedge ( 100,000 ) 50,000

Comprehensive Income P 550,000

Illustrative Example
Single Step or Single Statement Approach
 Republic Central Colleges
Angeles City

Activity #1
Name__________________________

THEORY
A. Requirement: Identify whether the following accounts are classified as Selling
Expense, Administrative Expense, Other expense, or Finance Cost

Sales salaries Sales commission

Advertising Store supplies expense

Delivery expense Depreciation-store

equipment
Office supplies Taxes and licenses
expense
Doubtful accounts Depreciation office
expense equipment
Loss on sales of Casualty loss
equipment
Interest expense Promotion
from bank
Freight out Transportation

Representation Miscellaneous expense

expense
Loss on sales of land Gas and oil expenses

Telephone expense Insurance expense- sales

Bad debt expense Property taxes

B. Requirement: Identify the following by choosing the answer below.

 1. The cost of services rendered by the employees and/or laborers of a
company
2. Decreased in owner’s equity that occur in the course of delivering goods and
services to customer
3. An activity that involves the exchange of values
4. An income statement presentation that clearly shows specific sections of
income, costs and expense in a series of arithmetic operations
5. This represents the inflow of cash or noncash assets arising from services
rendered
6. The account used for costs of operations that are not significant enough to
merit separate classification
7. Normal balance of all expense accounts
8. The purpose of a business other than rendering services
9. Cost incurred by office employees when commuting from the office to the
place of business of clients
10. Income from sources other the principal line of activity of the business

Choices

Natural form income statement Salaries expense Service income

Business transactions Debit balance Expense

Net income Functional form income statement Transportation

Manufacture goods Other income Miscellaneous

expense

Profit Credit balance

 Republic Central Colleges
Angeles City

Activity # 2

PROBLEM

1. Palawan Company, a service company, provided the following data for 2018:
Service revenue P 5,000,000 Sales salaries and 400,000
commissions
Accounting and legal fees 120,000 Doubtful accounts 90,000

Advertising 130,000 Rent expense 120,000

Interest expense 60,000 Utilities expense 310,000

Freight out 75,000 Officer’s salaries 500,000

Loss on sale of long-term 300,000 Property taxes and 250,000

investment insurance

Required: Prepare an income statement

2. The adjusted trial balance of Cherry Company included the following accounts on
December 31, 2018:

Sales P 9,500,000

Interest revenue 250,000

Gain on sale of equipment 100,000

Revaluation surplus during the 1,200,000

year
Cost of goods sold 6,000,000

Finance cost 150,000

Distribution costs 500,000

Administrative expenses 300,000

Translation loss on foreign 200,000
operation
Income tax expense 950,000

Required: a single statement of comprehensive income for the year ended

December 31, 2018

3. Kool Company provided the following information for 2018:

Sales P 9,070,000

Purchases 5,750,000

Freight in 150,000

Inventory, beginning 1,500,000

Inventory, ending 1,400,000

Officers’ salaries 400,000

Depreciation-building 120,000

Office supplies expense 60,000

Depreciation –store 110,000

equipment
Store supplies expense 80,000

Sales salaries 500,000

Sales return and allowance 200,000

Purchase discounts 100,000

Income tax expense 360,000

Required: a single statement of comprehensive income for the year ended

December 31, 2018.