What is “comprehensive income,” and how does SFAS No. 120 allow it to be reported?
What will be an ideal response?
ANSWER:
Comprehensive income is the change in equity of an entity during a period of transactions and other events and circumstance from non-owner sources. It includes net income as presently defined (including extraordinary items, discontinued operations, and change in accounting principle). Comprehensive income also includes those elements of profit and loss that previously bypassed the income statement. These items include foreign currency translation adjustments, unrealized holding gains and losses on available for sale securities, and minimum pension liability. SFAS No. 130 allows three methods of reporting comprehensive income: (1) in a combined statement of financial performance (in which comprehensive income components would appear below net income); (2) in a separate statement of comprehensive income which would begin with net income; and (3) reported within a statement of changes in equity. The FASB’s preference is for the first method.
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