Comprehensive Income

Comprehensive income sums up all changes in the shareholders' equity for a period except those arising from transactions with owners. It is a broader measure of return earned during period and can be defined as follows:

Comprehensive income = net income + other comprehensive income

Other comprehensive income

Other comprehensive income is the net effect of accounting transactions that bypass the income statement and are recognized directly in equity, for example, gains and losses on available for sale securities, unrecognized actuarial gains and losses, changes in revaluation surplus, etc.

Accumulated other comprehensive income is the accumulated change in equity since the start of business due to accounting transactions that are directly accounted for in equity.

Example

The shareholders' equity of Company OCI as at 1 January 2012 comprised of the following:

Common stock$200,000
Additional paid in capital300,000
Accumulated other comprehensive income100,000

During the year the company issued share capital with face value of $20,000 (leading to $10,000 of additional capital); revalued its properties up by $20,000 but incurred an unrealized loss of $10,000 on available for sale securities, earned a net income of $50,000 and paid dividends of $25,000.

Accumulated comprehensive income as a 31 December 2012 = Accumulated OCI as at 1 January 2012 of $100,000 + net income of $50,000 + revaluation gain of $20,000 − loss on available for sale securities of $10,000 = $160,000

Change in comprehensive income during the year = net income ($50,000) + gain on revaluation ($20,000) − loss on available for sale securities ($10,000) = $60,000

Accumulated other comprehensive income for the year = accumulated comprehensive income for the year ($60,000) − net income ($50,000) = $10,000

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