STATEMENT OF COMPREHENSIVE INCOME

INCOME STATEMENT
Formal statement showing the financial performance or profit or loss of an entity for a period of time.
Measured in terms of the level of income earned by the entity through the effective and efficient utilization of
resources.
Also known as the results of operations.
The income statement for a period presents the income, expenses, gains, losses and net income or loss
recognized during the period.

Transaction approach is the conventional or traditional preparation of income statement in conformity with
PFRS. This approach of computing net income or loss requires the determination of how much income was
earned during the year and how much expenses were incurred in earning the revenue.

Information about the financial performance of an entity, in particular its profitability, is useful in predicting
the capacity of the entity to generate cash flows from existing resources.

COMPREHENSIVE INCOME
Change in equity during a period resulting from transactions and other events, other than changes resulting
from transactions with owners in their capacity as owners.
Includes profit or loss and other comprehensive income.

Profit or loss is the total of income less expenses, excluding the components of other comprehensive income.
This amount is the bottom line in the traditional income statement.
An entity may use net income or net loss to describe profit or loss.

Other comprehensive income (OCI)

Comprises items of income and expense including reclassification adjustments that are not recognized in profit
or loss as required or permitted by Philippine Financial Reporting Standards.

Components of OCI
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 translating the financial statements of a foreign operation
4. Revaluation surplus during the year
5. Unrealized gain or loss from derivative contracts designated as cash flow hedge
6. Remeasurements of defined benefit plan
7. Change in fair value attributable to credit risk of a financial liability designated at fair value profit or
loss

Presentation of other comprehensive income

PAS 1, paragraph 82A, provides that the other comprehensive income section shall present line items for
amounts of other comprehensive income in the period, classified by nature.
The line items for amounts of OCI shall be grouped as:
OCI that will be reclassified subsequently to profit or loss when specific conditions are met.
OCI that will not be reclassified subsequently to profit or loss but to retained earnings.

OCI that will be reclassified subsequently to profit or loss

Gain or loss from translating financial statements of.a foreign operation.
Unrealized gain or loss on derivative contracts designated as a cash flow hedge.
Unrealized gain or loss on debt investment/ measüred at fair value through OCI.
 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.

OCI that will be reclassified to retained earnings

 Unrealized gain or loss on equity investment measured at fair value through OCI
Under PFRS 9, the unrealized gain or loss is reclassified to retained earnings upon disposal of the investment:
 Change in revaluation surplus
The realization of the revaluation surplus is through retained earnings.
 Remeasurements of a defined benefit plan
The remeasurements are not recycled subsequently to profit or loss but may be transferred within equity or
retained earnings.
 Gain or loss attributable to credit risk of a financial liability designated at fair value through profit or
loss,
The gain or loss may be recycled subsequently within equity or retained earnings.

Presentation Of comprehensive income

1. 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 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.

Sources of income
Sales of merchandise to customers
The income from sales shall include all sales to customers during the period minus. sales returns,
allowances and discounts.
Rendering of services
Income from rendering of services, among others, includes professional fees, media advertising
commissions, insurance agency commissions, admission fees for artistic performance and tuition fees.
Use of entity resources
This income includes interest, rent, royalty and dividend income.
Disposal of resources other than products
Examples include gain on sale of investments, gain on sale of property, plant and equipment and gain on
sale of intangible assets.

Components of expense
a. Cost of goods Sold or cost of sales
b. Distribution costs or selling expenses
c. administrative expenses
d. other expenses
e. Income tax expense

Cost of goods sold of a merchandising entity Cost of goods sold of a manufacturing entity
Classifications of expenses

Distribution costs or selling expenses constitute costs which are directly related to selling, advertising and
delivery of goods to customers. It includes:
Salesmen's salaries
Sales commissions
Traveling and marketing expenses
Advertising and publicity expenses
Freight out
Depreciation of delivery equipment and store equipment

Administrative expenses constitute cost of administering the business. These ordinarily include all operating
expenses not related to selling and cost of goods sold. Administrative expenses include:
Doubtful accounts
Office salaries and expenses of general executives
Office supplies expense
Contributions to charity
Professional fees
Depreciation of office building and office equipment
Amortization of intangible assets

Other expenses are those expenses not directly related to the distribution and administrative function. The
other expenses are the expenses and losses from peripheral or incidental transactions of the entity. Other
expenses include:
Loss on sale of trading investment
loss on sale of property, plant and equipment
Loss on sale of noncurrent investment
Loss on sale of intangible asset
Casualty loss from earthquake, typhoon, hurricane, tsunami, flood, fire, storm surge and other natural
disaster
Expropriation loss

No more extraordinary items

An entity shall not present any items of income and expense as extraordinary items, in the income statement or
statement of comprehensive income or in the notes.
Unusual and infrequent items of income and expense are considered component of income from continuing
operations.
Thus, expropriation loss and casualty loss from earthquake, typhoon, flood, fire and other natural disaster are
considered component of income from continuing operations.
Separate disclosure
Income statement may be presented in two ways, namely functional and natural.

The functional presentation in the traditional and common form of income statement. Also
known as the cost o/goods sold method.
Classifies expenses to their function as part of cost of goods sold, distribution costs,
administrative activities and other activities.
Entities classifying expenses by function shall disclose additional information on the
nature of expenses, including depreciation, amortization and employee benefit costs.

Natural presentation referred to as the nature of expense method.

Under this form, expenses are aggregated according to their nature and not allocated among
the various functions within the entity.
In other words, the natural expenses are no longer classified as cost of goods sold, distribution
costs, administrative and other activities.

The expenses which are of the same nature are grouped or aggregated and presented as one
item.

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