Updated July 10, 2023
Definition of Statement of Comprehensive Income
The statement of comprehensive income provides details of the company’s overall profitability for a specified period. This statement is divided into two parts. The first part is the profit and loss or income statement, which lists the company’s revenue and expenses over some time and provides details regarding the net profit or loss of the company for the same period. The second part is other comprehensive income which represents unrealized gains or losses. Both these parts together provide the total comprehensive income for the company.
Explanation
It is one of the most important financial statements of the company. It provides a detailed summary of its revenue, expense, tax, interest, etc. In addition, it calculates the company’s overall profitability for a specified period.
Apart from regular day-to-day revenue and expenses, there are other kinds of income like gain or loss due to fluctuations in the value of some assets; these kinds of loss and gain are not allowed to be recorded in the income statement of the company since they are yet to be realized; therefore they form part of the other comprehensive income. Therefore, total comprehensive income is the total net income and other comprehensive income (OCI).
Example of Statement of Comprehensive Income
Different examples are mentioned below:
| Statement of Comprehensive Income | |
| For the year ending 31 December 2xx1 | |
| Particulars | $ (000) |
| Sales | 14,000.00 |
| Less: Cost of goods sold | 3,000.00 |
| Gross profit | 11,000.00 |
| Operating expenses | |
| Salaries | 800.00 |
| Rent | 250.00 |
| Administrative expense | 100.00 |
| Finance cost | 850.00 |
| Profit before tax | 9,000.00 |
| Income tax expense | 200.00 |
| Profit for the year | 8,800.00 |
| Other Comprehensive Income | |
| Unrealized loss on financial assets | -400.00 |
| Unrealized gains on PPE revaluation | 1,200.00 |
| Actuarial gain on defined benefit plan | 600.00 |
| Foreign exchange difference in foreign operations | -500.00 |
| Income tax relating to the above items | -200.00 |
| Total Other Comprehensive Income | 700.00 |
| Total Comprehensive income of the year | 9,500.00 |
Items in Statement of Comprehensive Income
The items included in the two sections are as follows:
- Income statement: As the name suggests, the statement represents the company’s net income. This section of the statement of comprehensive income reflects revenues and cost of sales, which help calculate gross profit. It also reflects operating expenses like distribution, administration, finance, etc. Operating expenses are subtracted from the gross profit to calculate the net income for the period or profit before taxes (PBT). Lastly, income tax expense is subtracted from the PBT to arrive at the profit after taxes.
- Other comprehensive income: Other comprehensive income is further bifurcated into two parts:
- Items that will not be reclassified to profit and loss: All those items that will not be classified in profit and loss will come under this heading. Whether a particular item will be reclassified to the profit and loss account or not will be determined as per the applicable accounting standards.
- Items that may be reclassified to profit and loss later on: This section of other comprehensive income statements includes those items that can be reclassified to profit and loss accounts per accounting standards.
Uses of Statement of Comprehensive Income
Some of the uses are as follows:
- It helps calculate the company’s overall profitability for the specified period.
- And the net income statement lays down the way for a detailed analysis of the revenue and expenses of the company. It can help management accountants in the analysis of variance between actual and budgeted costs as well as revenues.
- Various financial ratios are calculated based on the statement of comprehensive income, which helps companies and stakeholders to analyze the company’s actual financial position at a certain point in time, considering the fair value principle.
- Other comprehensive gives detailed information regarding the company’s gains and losses that are yet to be realized.
Benefits of Statement of Comprehensive Income
- Helps calculate overall income. Both realized and unrealized; thus, it is one of the most important financial statements in company accounts.
- It is a financial analysis tool for investors who make investment decisions based on the company’s financial soundness.
- Helps management accountants keep checks over the organization’s cost and revenue and helps in laying down the strategy for optimizing cost and maximization of revenue.
- Helps the company perform a comparative analysis with its previous statement and statements of other companies to check where it stands in terms of profit and other income and expenses.
Disadvantages of Statement of Comprehensive Income
Some of the Disadvantages are as follows:
- It includes other comprehensive income, which represents unrealized gains or losses. This can easily lead to misrepresentation of the financial position of the company.
- The values in the statement of comprehensive income are based upon assumptions and are predictive. These values are calculated as per the accounting policies and guidelines.
Conclusion
The statement of comprehensive income is one of the most important financial statements of the company. Therefore, the statement is further divided into two key sections, i.e., net income statement and other comprehensive income.
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