F1_Module 7 Statement of Comprehensive Income

Question 1

What is comprehensive income?

Answer 1

It is the change in equity (net assets) resulting from non-owner sources (not investments by/or distributions to owners).

Net Income + Other Comprehensive Income = Comprehensive Income

Question 2

What are the items included in Other Comprehensive Income (OCI) that go to Equity as Accumulated Other Comprehensive Income?

Answer 2

PUFIE:
(P) Pension: Certain gains and losses from defined benefit plans recognized under OCI until recognized as pension expense on IS.
(U) Unrealized Gain/Losses on AFS debt Securities: Marked to market (MTM) each period.
(F) Foreign Currency Items: Gains or losses on foreign currency transactions as economic hedges and translation adjustments.
(I) Instrument specific Credit Risk: For liabilities for which the fair value is selected, the credit risk is included in OCI.
(E) Effective portion of Cash Flow Hedges: The effective portion is recognized in OCI until the cash flow is realized.

Question 3

What are reclassification adjustments?

Answer 3

Reclassification adjustments move OCI items from AOCI to the IS (avoiding double counting).

Question 4

What is Accumulated Other Comprehensive Income?

Answer 4

AOCI is a component of equity that includes total OCI for the current period and all previous periods. OCI for the current period is closed into the AOCI similar to how Net Income is closed into Retained Earnings at the end of each accounting period.

Question 5

How do you present Comprehensive Income in the Financial Statements? How prominent and what are the two ways.

Answer 5

With the same prominence using (1) a single statement approach or (2) two statement approach where the Statement of OCI follows the Income Statement (IS). The ending category is “Comprehensive Income”.

Question 6

Are the numbers on OCI presented pre-tax or net of tax?

Answer 6

The totals are presented Net of Tax. The components may be presented pre or post/net-tax as long as there is an amount shown for the total income tax expense/benefit in the notes to the Financial Statements. We end up with Comprehensive income after adding OCI to Net Income (also net of tax).

Question 7

Where is the Income tax expense/benefit shown?

Answer 7

Disclosed on the face of the statement or notes to the financial statements.

Question 8

What are some OCI disclosures required (would this information be useful)?

Answer 8

The tax effect of each component.
The changes in each component of PUFIE.
Total OCI.
Reclassification adjustments.