Memorandum –to-the- File: Comprehensive Income
Memorandum –to-the- File: Comprehensive Income
Date: June 5, 2013
RE: Question about the definition or example of comprehensive income.
Facts: I have been contacted by my client who has asked the question about the definition or example of comprehensive income. In recent years, there is increased use of fair values for measuring assets and liabilities. Furthermore, possible reporting of gains and losses related to fair value has placed a strain on income reporting. Because fair values are continually changing, some argue that recognizing this gains and losses in net income is misleading.
Issues: My client has asked: What is the definition or example of comprehensive income?
Applicable Accounting Standard (Codification)
ASC 220-10-55-2 enumerates the items that are required to be reported as other comprehensive income. Some of these items are: (a) Foreign currency translation adjustment; (b)Gains and losses of foreign currency transactions; (c) Gains and losses on intra-entity foreign currency transactions that are of long term investment in nature; (d) Gains and losses on derivatives instruments designate as cash flow hedge; (e) unrealized holding gains and losses on available- for sale- securities; (f) Unrealized holding gains and losses that result from a debt security being transferred into the available-for-sale category from the held-to-maturity category. ASC 220-10-55-3 describes the items that do not qualify as components of other comprehensive income. Some of these are: (a) Changes in equity during a period resulting from investments by owners and distributions to owners; (b) Reduction of share holder’s equity related to employee stock ownership plans; (c) Taxes not payable in cash; and (d) Net cash settlement resulting from a change in value of a contract that gives the entity a choice of net cash settlement or settlement in its own shares.
Non- authoritative Sources:
Intermediate Accounting, Kieso, Weyganndt,, Warfield, 15th
Date: June 5, 2013
RE: Question about the definition or example of comprehensive income.
Facts: I have been contacted by my client who has asked the question about the definition or example of comprehensive income. In recent years, there is increased use of fair values for measuring assets and liabilities. Furthermore, possible reporting of gains and losses related to fair value has placed a strain on income reporting. Because fair values are continually changing, some argue that recognizing this gains and losses in net income is misleading.
Issues: My client has asked: What is the definition or example of comprehensive income?
Applicable Accounting Standard (Codification)
ASC 220-10-55-2 enumerates the items that are required to be reported as other comprehensive income. Some of these items are: (a) Foreign currency translation adjustment; (b)Gains and losses of foreign currency transactions; (c) Gains and losses on intra-entity foreign currency transactions that are of long term investment in nature; (d) Gains and losses on derivatives instruments designate as cash flow hedge; (e) unrealized holding gains and losses on available- for sale- securities; (f) Unrealized holding gains and losses that result from a debt security being transferred into the available-for-sale category from the held-to-maturity category. ASC 220-10-55-3 describes the items that do not qualify as components of other comprehensive income. Some of these are: (a) Changes in equity during a period resulting from investments by owners and distributions to owners; (b) Reduction of share holder’s equity related to employee stock ownership plans; (c) Taxes not payable in cash; and (d) Net cash settlement resulting from a change in value of a contract that gives the entity a choice of net cash settlement or settlement in its own shares.
Non- authoritative Sources:
Intermediate Accounting, Kieso, Weyganndt,, Warfield, 15th