Lesson 1

The Statement of Comprehensive Income

            The “Statement of Comprehensive Income” – short for “Statement of profit or loss and
comprehensive income” – is the 2  component of a complete set of financial statements. The
nd

“Statement of Comprehensive Income” shows information of an entity’s financial performance

during the period. More specifically, it shows the following:

1. Profit or loss;
2. Other Comprehensive Income; and
3. Comprehensive income.

The “Statement of profit or loss and other comprehensive income” is different from the “Income
Statement.” The “Income Statement” (or statement of profit or loss) shows only the profit or
loss, while the “Statement of profit or loss and other comprehensive income” shows profit or loss
and “other comprehensive income.”

Income statement vs. Statement of comprehensive income

Income Statement Statement of comprehensive income

Income P1,000 Income P1,000

Expenses (600) Expenses (600)

Profit or loss P400 Profit or loss 400

    Other comprehensive income 50

    Comprehensive income P450

            The standard require entities to present a “Statement of profit or loss and other

comprehensive income.” Meaning, presenting an income statement alone without “other
comprehensive income” is prohibited.

            However, the standards  allow the presentation of an income statement together with the

statement of comprehensive income. This is called the “two-statement presentation.”

Single-statement vs. Two-statement presentation

1. Single-statement presentation:
ABC Co.

Statement of Comprehensive Income

For the period ended December 31, 20x1

Income P1,000

Expenses (600)

Profit for the year 400

Other comprehensive income 50

Comprehensive income for the year 450

1. Two-statement presentation:
1. First of two statements – the “Income statement”

ABC Co.

Income Statement

For the period ended December 31, 20x1

Income P1,000

Expenses (600)

Profit or loss P400

1. Second of two statements

ABC Co.

Statement of Comprehensive Income

For the period ended December 31, 20x1

 
Profit or loss P400

Other comprehensive income 50

Comprehensive income P450

Elements of the Statement of Comprehensive Income

The elements of the Statement of Comprehensive Income are income and expenses.

1. INCOME – is increase in economic benefits during the period in the form of increases in
assets, or decreases in liabilities, that result in increases in equity, excluding those
relating to investments by the business owner.

Income includes both revenue and gains.

1. Revenue arises in the course of the ordinary activities of a business, e.g., sales and
service fees.
o Service fees refer to revenue earned by a service business from rendering
services.
o Sales revenue or Sales refer to the revenue earned by a merchandising business
from selling goods.
2. Gains represent other items that meet the definition of income and may or may not arise
in the course of the ordinary activities of an entity.

2. EXPENSES – are decreases in economic benefits during the period in the form of
decreases in assets, or increases in liabilities, that result in decreases in equity, excluding
those relating to distributions to the business owner.

Expenses include both expenses and losses.

1. Expenses arise in the course of the ordinary activities of a business.

2. Losses represent other items that meet the definition of expenses and may or may not
arise in the course of the ordinary activities of the entity.

 
The difference between income and expenses represents profit or loss.

 If income is greater than expenses, the difference is

 If income is less than expenses, the difference is

Illustration: SCI of a service business

The trial balance of ABC Co. on December 31, 20x1 shows the following information:

Accounts Debit Credit

Service fees   P 870,000

Interest income   60,000

Gains   20,000

Salaries expense 300,000  

Rent expense 30,000  

Utilities expense 20,000  

Supplies expense 10,000  

Depreciation Expense 40,000  

Taxes and licenses 70,000  

Transportation and travel expense 5,000  

Interest expense 2,000  

Miscellaneous expense 1,000  

Losses 15,000  

Totals P 493,000 P 950,000

Requirement:

Prepare the statement of comprehensive income.

 
Presentation of expenses

Expenses may be presented in the statement of comprehensive using either of the following
methods:

1. Nature of expense method

2. Functions of expense method (Cost of sales method)

Nature of expense method

            Under this method, expenses are presented according to their nature (for example,
depreciation, purchases of materials, transport costs, employee benefits, advertising costs, etc.)
and are not reallocated among their functions within the entity. This method is simple to apply
because no reallocations of expenses are necessary.

            A statement of comprehensive income that shows expenses by their nature is referred to
as prepared using a single-step approach.

Functions of expense method

            Under this method, expenses are classified and presented according to their function as
part of cost of sales or, for example, the costs of distribution or administrative activities. At a
minimum, cost of sales is presented separately from other expenses.

            A statement of comprehensive income that shows expenses by their function is referred
to as prepared using a multi-step approach.

            The following are the major categories of expenses under the function of expenses
method:

1. Cost of sales (or Cost of Goods Sold)

2. Distribution costs (or Selling expenses)
3. Administrative expenses (or General and administrative expenses)
4. Other expenses
5. Interest expenses (or Finance cost)
6. Income tax expense

 Distribution costs (or Selling expenses) – are costs attributable to selling activities.
 Administrative expenses – is a residual category of expenses, meaning an expense that
does not qualify for classification under the other categories.
 Other expenses – includes losses, like casualty losses and losses on sale of properties.
  Income tax expense – includes taxes on income. Other taxes are presented in the
administrative expenses category under the “taxes and licenses” account.

Illustration: Function of expense

The accounts of an entity show the following balances:

Cost of Goods Sold P 250,000

Insurance expense 120,000

Advertising expense 18,000

Freight out 36,000

Loss on sale of equipment 4,000

Rent expense (one-half pertains sales department) 120,000

Salaries expense (1/4 pertains to non-sales personnel) 200,000

Sales commissions expense 20,000

Bad debts expense 6,000

Interest expense 1,000

Illustration: SCI of a merchandising business

The nominal accounts columns of the trial balance of ABC Co. on December 31, 20x1 show the
following information:

Accounts Debit Credit

Sales   P 900,000

Interest income   60,000

Gains   20,000

Inventory, beg. P 50,000  

Purchases 200,000  

Freight-in 10,000  
Purchase returns   5,000

Purchase discounts   7,000

Freight-out 25,000  

Sales commission 30,000  

Advertising expense 15,000  

Salaries expense 300,000  

Rent expense 30,000  

Depreciation expense 40,000  

Utilities expense 20,000  

Supplies expense 10,000  

Transportation and travel expense 5,000  

Insurance expense 12,000  

Taxes and licenses 70,000  

Interest expense 2,000  

Miscellaneous expense 1,000  

Loss on the sale of equipment 15,000  

Totals P 835,000 P 992,000

Additional information:

1. Ending inventory is P 80,000

2. One-half of the salaries, rent, and depreciation expenses pertain to the sales department.
The sales department does not share in the other expenses.

Requirements:
Prepare the statement of comprehensive income using the following:

1. Nature of expense method (Single-step approach)

2. Function of expense method (Multi-step approach)

            Let Us Know!

Here are the key points tackled in Module 1:

 A “Statement of profit or loss and other comprehensive income” (or simply ‘Statement of
comprehensive income’) is different from an income statement in that a statement of
comprehensive income does not only show information on profit or loss but also other
comprehensive income.
 A statement of comprehensive income may be presented using a “single-statement”
presentation or a “two-statement” presentation. A “two-statement” presentation consists
of
o An income statement showing the profit or loss
o A statement showing other comprehensive income.
 The elements of a statement of comprehensive income are income and expenses. Income
encompasses both revenues and gains, while expenses encompass both and losses.
 The difference between income and expenses represents profit or loss.
 Expenses may be presented in the statement of comprehensive income using:
o Nature of expense method (Single-step approach)
o Function of expense method (Multi-step approach).
 The following are the major categories of expenses under the function if expense method:
o Cost of sales
o Distribution costs
o Administrative expenses
o Other expenses
o Interest expense
o Income tax expense