The statement of comprehensive income depicts the changes in equity over the given time frame. In other words, it explains why the net assets have changed over a given period of time. There are mainly two components for the statement of comprehensive income: Net income and other comprehensive income (OCI).
Net income is the difference between revenues and expenses and is obtained from the income statement. On the other hand, OCI includes all other items that are excluded from the purview of the income statement.
The amounts of OCI are not included in the entity’s net income or retained earnings but just on the OCI component of the statement of comprehensive income.
Condensed Statement of Comprehensive Income:
Condensed means being short. That would mean condensed statement of comprehensive income summarizes all the portions of income statement and OCI into few captions and amounts.
Generally, condensed statement of comprehensive income would show only the headings excluding the details that were being shown its more lucid form i.e. statement of comprehensive income.
The users of the condensed income statements would find it easier to go through this statement glancing directly at what the company has been doing.
Let’s take an example of a trading company.
The condensed income statement of trading company would summarize different categories of sales into one amount with description of net sales. The details regarding purchases and other changes in inventory are presented under cost of goods sold heading directly.
The numbers of operating expenses like selling expenses, administrative expenses, etc. would be presented under Operating expenses.
Breaking down Condensed Statement of Comprehensive Income
The most important part of the condensed statement of comprehensive income is the income statement. The income statement provides details on revenues and expenses, including payable taxes and interest charges. The main purpose of an income statement is to present net income.
However net income only serves the purpose of earned income and expenses. Certain gains and losses regularly occur from fluctuations in the value of their assets. They are to be recognized in other comprehensive income. It consists of items such as:
- Unrealized gains or losses from debt securities
- Adjustments made to foreign currency transactions
- Unrealized gains or losses from available-for-sale securities
- Gains (losses) from pension programs
- Gains (losses) from derivative instrument
Format of Condensed Statement of Comprehensive income
A basic format for condensed statement of comprehensive income is given below:
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | Amount |
|---|---|
| Net sales | XXX |
| Cost of goods sold | (XX) |
| Gross profit | XXX |
| Operating expenses | (XX) |
| Income from operations | XXX |
| Non-operating expenses | (XX) |
| Income before taxes | XXX |
| Taxes expenses | (XX) |
| Net income | XXX |
| Other comprehensive income for the year, net of income tax | XXX |
| Total comprehensive income | XXX |
| Net income (loss) attributable to Shareholders | XXX |
| Total comprehensive income (loss) attributable to shareholders | XXX |
| Basic Earnings per share | XXX |
Uses of a Condensed Statement of Comprehensive Income
The Condensed Statement of Comprehensive Income entails the summary of the income statements and other comprehensive income.
It shows the eagle-eye view of all the operating and non-operating income and expenses in one statement. Here are some of the uses of the Condensed Statement of Comprehensive Income:
1. Summary of revenue and expenses information
The Condensed Statement of Comprehensive Income provides the figures of the sales revenue and cost of goods sold. Further it can provide category of operating expenses such as selling expenses and administration expenses.
2. Simple Analytics tool for investors
The components as income statement and statement of comprehensive income are financial reports. Investors are very much interested in these financial reports for decision making in evaluation of investment.
The higher the condensed statement shows about earnings, the more profitable it would be for investors to make a suitable investment.
Limitations of a Statement of Comprehensive Income
1. Misrepresentation
A condensed statement of comprehensive income is a summary of the income statement and other comprehensive income. It does not break the headings into various accounts. Hence, the statement falls short in some manner.
The statement is based on the accrual system of accounting meaning that all the expenses that need to be incurred during the year would be recorded although the cash flows are not necessary. This has to be checked from the statement of cash flows to give a rear view of the company.
2. Difficulties in making predictions
Condensed statement of comprehensive income does not provide details on whether the firm will succeed. It is based on historical data to compute earnings per share and other past financial records.
Hence, investors make certain assumptions to forecast the earnings of the company for investment purposes although it’s difficult in making such assumptions.
