Total comprehensive income represents the net change in shareholders’ equity resulting from a company’s operations excluding transactions with shareholders in their capacity as owners. Even though net income is the predominant part of such as change, there are certain other items that affect equity but not the income statement. Such items are collectively called other comprehensive income.\[ Comprehensive\ income = Net\ income + Other\ comprehensive\ income \]
Other comprehensive income
Examples of other comprehensive income include:
- Foreign currency translation adjustments,
- Unrealized gains and losses on derivative contracts accounted for as hedges,
- Unrealized holding gains on certain investments, such as available for sale debt securities (US GAAP), and securities designated as ‘fair value through other comprehensive income’ (IFRS), and
- Certain costs of a company’s defined benefit pension plans.
Under IFRS, it also includes the effect of the revaluation model for fixed assets. Further, under IFRS companies must present separately items that will or will not be moved to profit and loss.
Under US GAAP, no gain or loss is recognized on debt securities held to maturity, and unrealized gains and losses for debt securities designated as trading securities, and all equity investments (other than those resulting in significant influence) is included in profit and loss. All other investments are classified as available for sale, and any unrealized changes are reflected in OCI.
Under IFRS, instruments held as ‘fair value through profit and loss’ affect the income statement and those held as ‘fair value through other comprehensive income’ are reflected in OCI.