COMPREHENSIVE INCOME Flashcards
What is Comprehensive Income?
Comprehensive income is the change in equity during a period resulting from transactions and other events, excluding transactions with owners in their capacity as owners.
What does Comprehensive Income include?
It includes components of profit or loss and other comprehensive income.
What are the Components of Profit or Loss?
Income minus expenses, including tax expense and any income or loss from discontinued operations.
What are the Components of Other Comprehensive Income (OCI)?
OCI includes income and expenses not recognized in profit or loss but recorded as other comprehensive income according to the Philippine Financial Reporting Standards.
What is Other Comprehensive Income (OCI)?
OCI comprises income and expenses, including reclassification adjustments, that are not recognized in profit or loss as required or permitted by Philippine Financial Reporting Standards.
How should Other Comprehensive Income be presented?
The Statement of Comprehensive Income must present line items for OCI during the period, classified by nature.
What are the types of OCI that will be reclassified subsequently to profit or loss?
1) Unrealized gain or loss on debt investment measured at FVOCI.
2) Translation gains and losses of foreign operations.
3) Unrealized gain or loss on derivative contracts designated as cash flow hedge.
What types of OCI will not be reclassified to profit or loss but can be reclassified to Retained Earnings?
DECS:
1) Remeasurement gains and losses for defined benefit plans.
2) Unrealized gain or loss on equity investment measured at FVOCI.
3) Gain or loss on a financial liability designated at FVPL attributed to credit risk.
4) Revaluation surplus.
How are Revaluation Surplus and Remeasurement Gains Treated in OCI?
Revaluation surplus and remeasurement gains for defined benefit plans are excluded from profit or loss and may be transferred to Retained Earnings.
How many options does an entity have for presenting comprehensive income?
An entity has two options for presenting comprehensive income: 1) Two Statements and 2) Single Statement of Comprehensive Income.
What is the Two-Statement format of presenting comprehensive income?
One statement is an income statement showing the components of profit or loss, and the second is a statement that begins with profit or loss plus or minus components of other comprehensive income.
What does a Single Statement of Comprehensive Income show?
It combines the components of profit or loss and other comprehensive income in a single statement.
What information should be presented in the Statement of Comprehensive Income?
Revenue, finance costs, share of profit or loss of associates, tax expense, total of post-tax profit or loss of discontinued operations, and total comprehensive income.
What are allocations of Profit or Loss for the Period?
These disclose the portion of profit or loss attributable to minority interest and owners of the parent.
What forms can the Income Statement take?
The Income Statement can either classify expenses based on their nature or by their function.
What is the Nature of Expense Method?
It aggregates expenses by nature without reallocating them among various functions like cost of sales, distribution, or administrative expenses.
What is the Function of Expense or Cost of Sales Method?
It classifies expenses based on their function, such as cost of sales, distribution costs, and administrative expenses.
What additional details should be disclosed for the function-based classification?
Expenses such as depreciation, amortization, and employee benefit costs should be disclosed separately.
Can extraordinary items be presented in the Income Statement?
No, extraordinary items cannot be presented either on the face of the Income Statement or in the notes.
What might General and Administrative Expenses (GenAd) include?
Rent, legal and audit fees, officers’ salaries, and insurance.
What might Selling Expenses include?
Rent, freight-out, sales salaries, and commissions.
What are not part of Net Income, even though they involve financial changes?
Dividend received from associates, gain on sale of equity investments at FVOCI, and credit adjustment of prior-year profit for over-depreciation (net of tax).
What is the general treatment of equity earnings of an associate in Net Income?
Equity earnings of an associate, such as a 25% interest, are considered part of Net Income as investment income.
How are unrealized gains on equity investments held for trading treated?
These unrealized gains are recognized in Net Income because trading securities are measured at fair value through profit and loss.
How is the Comprehensive Income calculated?
Comprehensive income equals income from continuing operations plus discontinued operations and other comprehensive income (OCI).
What does “Fair Value through Profit or Loss (FVTPL)” mean for financial assets?
Financial assets measured at FVTPL are revalued at fair value, with changes in value reported in profit or loss.
What is the treatment of gains or losses from investments held at Fair Value through Other Comprehensive Income (FVOCI)?
Gains or losses on investments measured at FVOCI are recognized in other comprehensive income, not profit or loss, until realized.
What is the significance of ‘Other Comprehensive Income’?
OCI represents items that do not affect profit or loss directly but can still impact equity and the overall financial position of a company.
What happens to OCI items when an equity investment is sold?
The accumulated gains or losses from OCI are reclassified to profit or loss on disposal.
How does the company report OCI for translation of foreign operations?
The gains or losses from foreign currency translation are recorded in OCI, until the disposal of the foreign subsidiary.
What are ‘Non-controlling interests’ in the Statement of Comprehensive Income?
Non-controlling interests represent the portion of equity in a subsidiary not owned by the parent company, and its share in profit or loss and OCI must be disclosed.
How should discontinued operations be reported?
Discontinued operations should be reported separately from continuing operations, including separate disclosure for the post-tax gain or loss and cash flows associated with those operations.
What is the role of the ‘Attributable to Owners of the Parent’ line item?
This line item reflects the portion of profit or loss and comprehensive income that belongs to the parent company’s shareholders.
What is the ‘Function of Expense’ method in profit or loss reporting?
In this method, expenses are grouped based on their functions, such as cost of sales, marketing expenses, or general administrative expenses.
What should a Statement of Comprehensive Income include according to PAS?
It should include items like revenue, expenses, profit or loss, tax expense, and net income attributable to non-controlling interest or the parent company.
Can losses from foreign currency translation be included in OCI?
Yes, losses from foreign currency translation can be included in OCI and would only be reclassified to profit or loss when the related foreign subsidiary is sold or liquidated.
What happens if an entity revalues its assets?
The revaluation surplus or deficit is reported in OCI. If there is a surplus, it increases in OCI; if there’s a deficit, it reduces in OCI to the extent of any credit balance in revaluation surplus in respect of that asset.
How does the remeasurement of defined benefit plans affect OCI?
Remeasurement gains and losses are reported in OCI, and they will not be reclassified to profit or loss in the future.
How are gains or losses from cash flow hedges treated in OCI?
Gains or losses on effective hedges are recorded in OCI until the underlying transaction affects profit or loss.
What is meant by ‘net income for the period’?
Net income for the period represents the overall financial result from an entity’s operations, after subtracting expenses, taxes, and any losses.
What is a ‘transfer of reserves’ in terms of OCI?
A transfer of reserves refers to moving amounts from OCI to retained earnings, typically done with the revaluation surplus or certain components of OCI when they are realized.
What do ‘Tax Effects’ mean in the context of OCI?
Tax effects in OCI show the impact of taxation on items recorded in OCI, which could be positive (tax benefit) or negative (tax expense).
How does a company report the OCI effect of tax expense or benefit?
The OCI section includes the tax effects of income and expenses recognized in OCI, making sure the after-tax impact is clear to the users.
How should prior period errors be corrected in the Statement of Comprehensive Income?
Prior period errors are adjusted retroactively in the statement and reported in the period when the error is discovered.
What are common examples of items that impact Comprehensive Income but not Profit or Loss?
Common examples include unrealized gains and losses on investments, foreign exchange differences, and certain pension plan adjustments.
Can companies use a ‘combined statement’ to report income and OCI?
Yes, companies can present a combined statement with profit or loss and OCI in one statement, known as the ‘single statement approach.’
What are gains or losses on effective hedges recorded in?
Gains or losses on effective hedges are recorded in OCI until the underlying transaction affects profit or loss.
Why is the ‘Statement of Changes in Equity’ important?
It shows how the total equity of an entity changes over time due to profit or loss, OCI, dividends, issuance of new shares, and other equity transactions.
