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11.3.2 Statement Of Comprehensive Income

Understanding the importance and detailed components of the Statement of Comprehensive Income, a vital document revealing a company’s profitability during a fiscal year.

Statement of Comprehensive Income

The Statement of Comprehensive Income shows a company’s total income and expenses for a specific period, often a fiscal year. This statement determines a company’s profit or loss, from which dividends might be distributed to shareholders.

What Does the Statement Reveal?

The statement of comprehensive income reveals critical information about the company, including:

  • Revenue Sources: Where the money comes from.
  • Expense Allocation: How and where the money is spent.
  • Earnings Adequacy: Whether the earnings are sufficient to ensure the company’s ongoing operations and provide returns to its security holders.

Did You Know?

When analyzing a company’s financial health, its earning power and cash flow are paramount. The ability to generate earnings, and subsequently cash flow, is critical for assessing financial strength. This data is most evident in the Statement of Comprehensive Income and the Statement of Cash Flows.

Structure of the Statement of Comprehensive Income

Main Sections

  1. Revenue
  2. Cost of Sales
  3. Gross Profit

Gross profit is calculated as:

$$ \text{Gross Profit} = \text{Revenue} - \text{Cost of Sales} $$

Post gross profit computation, additional income is considered, and general expenses are subtracted to arrive at Total Comprehensive Income.

Components Explained


  • Revenue is the income generated from the sale of goods or services. This is a pivotal figure, used to assess various profitability ratios like net and gross profit margins. These ratios help in evaluating a company’s financial health.

Cost of Sales

  • This includes all direct expenses related to producing and selling goods and services, such as labor, raw materials, fuel, power, and directly attributable overheads.

There are two common formats for disclosing expenses in the Statement of Comprehensive Income:

  1. By Nature (e.g., depreciation, raw materials, employee benefits)
  2. By Function (e.g., cost of sales, administrative, distribution)

The Trans-Canada Retail statement presents expenses by function.

Gross Profit

  • Gross Profit is a company’s profitability indicator, representing the spread between sales revenue and the cost tied directly to those sales. It is calculated as follows:

$$ \text{Gross Profit} = \text{Revenue} - \text{Cost of Sales} $$

Comparing the Gross Profit Margin across similar companies provides insight into managerial efficiency.

Other Income

  • Other income refers to earnings not directly related to core business activities, such as investments and asset sales profits. Having transparency in representing other income ensures a true inflation of business earnings.

General Expenses Deducted

After acknowledging gross profit and other incomes, general expenses are considered, such as:

  • Distribution costs (such as advertising and sales personnel salaries)
  • Administrative expenses (such as office and staff salaries)
  • Finance costs (e.g., Interest on long-term debt)

Finance Costs

These costs, such as fixed interest payments to creditors, are paid prior to income distribution to shareholders. Failure in meeting these obligations could lead to creditors triggering receiver actions or bankruptcy.

Share of Profit of Associates

This portion highlights a company’s earnings from investments where it holds significant influence without control (20%-50% ownership).

For example, if Trans-Canada Retail Stores Ltd. owns 25% of Alberta Retail Stores Ltd., and Alberta Retail Stores yielded a post-tax profit of $20,000 within a year, Trans-Canada Retail will report:

$$ \text{Share of Profit} = 25\% \times \$20,000 = \$5,000 $$

Non-Cash Elements

Shares of profit (or losses) are considered non-cash elements for an investor’s true understanding of cash-based profit and other key ratios.

Income Tax Expense

This includes current and deferred tax elements derived for a reporting period, detailed further within financial notes.

Final Profit Calculation

Finally, this calculation adjusts profit figures for income taxes and other comprehensive income items such as:

  • Actuarial gains/losses from defined benefit plans
  • Foreign currency translations

These adjustments are critical in defining total comprehensive income, documented under the statement of changes in equity.

Key Takeaways

  • The Statement of Comprehensive Income is essential for a true understanding of a company’s profit and financial health.
  • Differentiates primary income (Revenue) from ancillary sources (Other income) to present a true financial portrayal.
  • Reflects how proficiently revenue and costs are managed in comparison with competitors.
  • Elements like “share of profit of associates” ensure non-cash impacts are differentiated from cash performance evaluations.


1. What is included in the Statement of Comprehensive Income?

  • Primary components include revenue, cost of sales, gross profit, other income, and general expenses including finance costs.

2. What are general expenses?

  • General expenses cover distribution costs, administrative costs, and finance costs.

3. What does ‘share of profit of associates’ mean?

  • It refers to the earnings derived from significant shareholding in another company where ownership is between 20-50% without full control.

4. Why is other income displayed separately?

  • To distinguish core operational profitability from ancillary/unpredictable income sources and avoid distorted earning power portrayals.

📚✨ Quiz Time! ✨📚

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## What does the statement of comprehensive income primarily show? - [ ] A company’s assets and liabilities - [ ] A company’s cash flow throughout the year - [x] A company’s profit or loss for the year - [ ] A company’s tax obligations > **Explanation:** The statement of comprehensive income reveals how much money a company earned during the year and how much it spent, ultimately showing the company’s profit or loss for the year. ## Which of the following is NOT typically included in the first section of the statement of comprehensive income? - [ ] Revenue - [ ] Cost of sales - [ ] Gross profit - [x] Administrative expenses > **Explanation:** The first section of the statement of comprehensive income includes revenue, cost of sales, and gross profit. Administrative expenses are typically deducted after other income is added to gross profit. ## How is gross profit determined? - [ ] By adding revenue and cost of sales - [ ] By subtracting other income from revenue - [x] By subtracting cost of sales from revenue - [ ] By adding administrative and distribution costs > **Explanation:** Gross profit is calculated by subtracting the cost of sales from the revenue. ## Which item is subtracted from gross profit to determine total comprehensive income? - [x] General expenses - [ ] Revenue - [ ] Cost of sales - [ ] Dividends > **Explanation:** After calculating gross profit, general expenses are subtracted to arrive at total comprehensive income. ## What are two primary sources of income for a company? - [ ] Revenue and dividends - [ ] Cost of sales and other income - [x] Revenue and other income - [ ] Gross profit and net profit > **Explanation:** A company’s main sources of income are typically classified as revenue (from sales of products or services) and other income (such as dividends, interest, and rents). ## What does 'other income' typically include? - [ ] Income from the company’s main operations - [x] Dividends, interest, and rents - [ ] Sales revenue - [ ] Costs associated with production > **Explanation:** Other income includes dividends, interest from investments, and rents which are not directly related to the company's primary operational activities. ## Why should revenue and other income be shown separately in the statement of comprehensive income? - [ ] To inflate the company’s profitability - [x] To provide a true picture of the company’s real earning power from its main operations - [ ] To simplify accounting procedures - [ ] To meet tax obligations > **Explanation:** Separating revenue and other income allows stakeholders to gain a true view of the company's regular earning power, preventing substantial but non-recurring income from giving a false impression of the company's earning capacity. ## What method of accounting is used when a company has significant influence over another company without gaining control? - [ ] Cost method - [ ] Consolidation method - [x] Equity method - [ ] Accrual method > **Explanation:** The equity method of accounting is used when one company’s investment creates significant influence (typically ownership of 20% to less than 50% of voting shares) but not control. ## How should companies adjust profit calculations for a non-cash item like 'share of profit of associates'? - [ ] Subtract it from the company’s revenue - [ ] Combine it with other income - [x] Exclude it when calculating cash profit ratios - [ ] Add it to the distribution costs > **Explanation:** Since the 'share of profit of associates' is a non-cash item, it must be excluded when calculating cash profit ratios to get a true picture of the company's cash profit. ## What does the term 'total comprehensive income' include? - [ ] Gross profit only - [x] Profit or loss for the year plus other comprehensive income - [ ] Revenue minus cost of sales - [ ] Profit after dividends > **Explanation:** Total comprehensive income comprises the profit (or loss) for the year plus other comprehensive income, if any. This figure is then transferred to the statement of changes in equity.

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Saturday, July 13, 2024