What is comprehensive income?

Answer 1

COMPREHENSIVE INCOME

Net income under U.S. GAAP, or profit under IFRS, reports increases in net assets from certain transactions with nonowners such as customers. Net income, or profit, does not include all transactions with nonowners. Both U.S. GAAP and IFRS define net income, or profit, for the current period to exclude certain events and transactions with nonowners that change net assets. Both U.S. GAAP and IFRS use the term Other Comprehensive Income (OCI) to refer to changes in net assets that are not transactions with owners and that do not appear on the income statement. Both U.S. GAAP and IFRS specify the items that do not appear in the income statement and that are included in other comprehensive income

The sum of net income and other comprehensive income is Comprehensive Income, which
includes all changes in net assets for a period except for changes arising from transactions
with owners. (Typical transactions with owners include dividends, share issuances, and share
repurchases).

The items reported in other comprehensive income relate to changes in the amount of
assets and liabilities resulting from transactions with nonowners—transactions whose effects
authoritative guidance has chosen to exclude from net income. Both U.S. GAAP and IFRS
require firms to report the cumulative effect of other comprehensive income in a balance
sheet account called Accumulated Other Comprehensive Income (AOCI). Accumulated Other Comprehensive Income relates to Other Comprehensive Income just as Retained Earnings relates to Net Income, when the firm declares no dividends.

While no general principle describes the nature of items excluded from net income and included in Other Comprehensive Income, they tend to arise from remeasurements of assets and liabilities (often, remeasurements at fair value) and not from transactions. For example, IFRS permits but does not require firms to revalue certain noncurrent assets upward to reflect increases in fair value in excess of acquisition cost. Under IFRS, such a revaluation remeasurement increases assets (because the firm now records an existing asset on the balance sheet at a larger number) and increases Other Comprehensive Income. These increases are accumulated in a shareholders' equity account, Revaluation Surplus. OCI stands for Other Comprehensive Income, and the revaluations accumulate in shareholders' equity, in the Revaluation Surplus account.

Both U.S. GAAP and IFRS require the presentation of an income statement and the presentation of the items of Other Comprehensive Income. U.S. GAAP permits three reporting formats. Starting January 1, 2009, IFRS permits free choice between the first two reporting formats.

1 . A single statement of comprehensive income that shows all the changes in net assets except from transactions with owners;

2 . A two-statement presentation that includes an income statement and a separate statement of comprehensive income.

3 . A separate display of the items comprising Other Comprehensive Income within a statement of changes in shareholders' equity. Firms applying U.S. GAAP use this alternative more often than the other two.