(Intermediate Accounting 3)

LECTURE AID

2020

ZEUS VERNON B. MILLAN

Chapter 2 Statement of Comprehensive
Income
Related standard: PAS 1 Presentation of Financial Statements

Learning Objectives
• Prepare a Statement of Profit or Loss and Other
Comprehensive Income.
• Give examples of items of other comprehensive income.
• State the acceptable methods of presenting items of income
and expenses.

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Statement of profit or loss and other
comprehensive income
• An entity shall present all items of income and expense recognized
in a period:
1. in a single statement of profit or loss and other comprehensive
income; or
2. in two statements: (1) a statement displaying the profit or loss
section only (separate ‘statement of profit or loss’ or ‘income
statement’) and (2) a second statement beginning with profit or
loss and displaying components of other comprehensive income.

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Extraordinary items

• PAS 1 prohibits the presentation of any items of income or expense

as extraordinary items in the in the statement(s) presenting profit or
loss and other comprehensive income or in the notes.

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Other comprehensive income for the period

a. Changes in revaluation surplus

b. Unrealized gains and losses on investments in FVOCI securities
c. Remeasurements of the net defined benefit liability (asset)
d. Gains and losses arising from translating the financial statements
of a foreign operation
e. Effective portion of gains and losses on hedging instruments in a
cash flow hedge

• OCI may be presented either (a) net of tax or (b) gross of tax.

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Reclassification adjustments
• 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.

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Total comprehensive income

• Total comprehensive income comprises all components of

1. Profit or loss; and
2. Other comprehensive income.

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Presentation of Expenses

1. Nature of expense method

2. Function of expense method

• If an entity classifies expenses by function, it shall disclose

additional information on the nature of expenses

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Disclosure of dividends

• Dividends declared by an entity are disclosed either in the (a) notes

or (b) statement of changes in equity.

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Order of presentation of disclosures in the Notes

1. Statement of compliance with PFRSs;

2. Summary of significant accounting policies applied;
3. Supporting information for items presented in the other financial
statements; and
4. Other disclosures.

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 APPLICATION OF
CONCEPTS
PROBLEM 2: FOR CLASSROOM DISCUSSION

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PROBLEM 2, no. 7: Lunch CO.
Lunch Co.
Statement of profit or loss and other comprehensive income
For the year ended December 31, 20x1

Notes
Sales 22,000,000
Cost of goods sold 12 (6,000,000)
Gross profit 16,000,000
Distribution costs 13 (2,230,000)
Administrative expenses 14 (3,050,000)
Impairment loss on financial assets (190,000)
Finance costs (340,000)
Profit before tax 10,190,000
Income tax expense (2,000,000)
Profit for the year 8,190,000
Other comprehensive income
Items that will not be reclassified subsequently:
Investments in equity instruments 200,000
Items that may be reclassified subsequently to profit or loss:
Cash flow hedges 30,000
Other comprehensive income for the yr., net of tax 230,000

TOTAL COMPREHENSIVE INCOME FOR THE YR. 8,420,000

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PROBLEM 2, no. 7: Lunch CO.

NOTE 12: COGS NOTE 14: ADMIN. EXPENSES

Beginning inventory 1,700,000
Research and development expense 180,000
Purchases 5,600,000 2,000,000
Directors' remuneration
Purchase returns (500,000) 520,000
Salaries of administrative personnel
Freight in 400,000
Rent expense 140,000
Total goods available for sale 7,200,000
Depreciation expense 160,000
Ending inventory (1,200,000)
Insurance expense 50,000
Cost of goods sold 6,000,000
Administrative expenses 3,050,000
NOTE 13: DISTRIBUTION COSTS
670,000
Salaries of sales personnel
320,000
Advertising expense
140,000
Rent expense (280,000 x ½)
1,100,000
Commission expense

Distribution costs 2,230,000

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PROBLEM 4’ ACTIVITY 2: BUDDIES CO.

Requirement A:
(a) Investment in bonds (950K – 800K) 150,000
Gain on derecognition of 150,000
financial asset
(b) Unrealized loss [2.8M – (2.640M – 140M)] 300,000
Biological assets 300,000
(c) Investment in associate 46,000
Dividend income 90,000
Sh. in the profit of associate 100,000
(1M x 30% x 4/12)
Sh. in revaluation increase 36,000
(120,000 x 30%)

(d) Retirement benefits expense 588,000

(336K + 252K)
Remeasurements to the net defined benefit liability (asset) 252,000
Defined benefit cost
840,000
(e) Income tax expense 1,104,600
Income tax payable 1,104,600

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PROBLEM 4’ ACTIVITY 2: BUDDIES CO.

Requirement B: Buddies Co.

Statement of profit or loss and other comprehensive income
For the year ended December 31, 20x1

Revenue from service fees 12,000,000

Contract costs (4,000,000)
Employee benefits (3,000,000)
Advertising expense (680,000)
Gain on derecognition of financial asset measured at cost 150,000
Unrealized losses on biological assets (300,000)
Share in profit of associate 100,000
Retirement benefits expense (588,000)
Profit before tax 3,682,000
Income tax expense (1,104,600)
Profit for the year 2,577,400
Other comprehensive income:
Items that will not be reclassified subsequently:
Share in revaluation increase of associate 36,000
Remeasurements to net defined benefit liability (asset) (252,000)
Items that may be reclassified subsequently to profit or loss: -
Other comprehensive income for the year, net of tax (216,000)

TOTAL COMPREHENSIVE INCOME FOR THE YR. 2,361,400

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PROBLEM 6: M.C.

1. D. 25,000 gross of tax – 10,000 tax effect = 15,000 net of tax reclassification
adjustment
2. A. Reclassification adjustment of cumulative unrealized gains (losses) on FVOCI
securities is prohibited. The cumulative unrealized gains (losses) on FVOCI securities
are transferred directly in equity when the FVOCI securities are derecognized.
3. A.

Actuarial gain or loss on defined benefit plan (6,000)

Unrealized gain on FVOCI securities 30,000

Reclassification adjustment for cumulative gain on

translation of foreign operation included in profit or loss (5,000)

Profit for the year 154,000

Total comprehensive income 173,000

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