F3 02 SCI and SCE Handouts

ACCTG 6-FINANCIAL ACCOUNTING AND REPORTING 3
HANDOUT #2
STATEMENT OF COMPREHENSIVE INCOME AND STATEMENT OF CHANGES IN EQUITY
BMS, CPA
I.
Statement of Comprehensive Income
Comprehensive income is the change in equity during a period resulting from transactions and other events, other than
changes resulting from transactions with owners in their capacity as owners. It includes
Components of profit or loss
Components of other comprehensive income
4:13
I can do all things through Christ who strengthens me.>>Philippians

Page 1
Profit or loss is the total income less expenses, excluding the components of other comprehensive income.
BMS, CPA
Other comprehensive income (OCI) comprises items of income and expense including reclassification adjustments that
are not recognized in profit or loss as required or permitted by PFRS.
The components of OCI include the following:
1. Unrealized gain or loss on investments in equity instruments measured at fair value through other comprehensive
income
2. Gain or loss from translating the financial statements of a foreign operation
3. Revaluation surplus during the year
4. Unrealized gain or loss from derivative contracts designated as cash flow hedge
5. Remeasurements of defined benefit plan, such as actuarial gain and loss, difference between actual return on plan
assets and interest income on fair value of plan assets, and change in the effect of the asset ceiling.
Presentation of OCI
The line items for amounts of OCI shall be grouped as follows:
1. OCI that will be reclassified subsequently to profit or loss when specific conditions are met.
Examples:
Gain or loss from translating FS of a foreign operation.
Unrealized gain or loss on derivative contracts designated as a cash flow hedge.
2. OCI that will not be reclassified subsequently to profit or loss.
Examples:
Unrealized gain or loss on investments in equity instruments measured at fair value through OCI.
Under PFRS 9, the unrealized gain or loss is reclassified to retained earnings upon disposal of the
investment.
Change in revaluation surplus. The realization of the revaluation surplus is through retained earnings.
Remeasurements of a defined benefit plan.
The remeasurements are not recycled subsequently to P/L but may be transferred within equity.
Presentation of comprehensive income
An entity has two options of presenting comprehensive income namely:
1. Two-statement approach
An income statement (IS) showing the components of P/L.
A statement of comprehensive income (SCI) beginning with P/L as shown in the IS plus or minus the
components of OCI.
2. Single statement approach
This is the combined statement showing the components of P/L and components of OCI in a single statement
of comprehensive income (SCI).
Line items in the SCI
Revenue
Gain or loss from derecognition of financial asset measured at amortized cost as required by PFRS 9
Finance cost
Share of income or loss of associate and joint venture accounted for using equity method
Income tax expense
A single amount comprising discontinued operations
P/L for the period
OCI
Comprehensive income for the period
Income-inflow of future economic benefits that increases equity, other than contribution by owners.
Sources of income
Sale of merchandise to customers
Rendering of services
4:13

Page 2
BMS, CPA
Use of entity resources

Disposal of resources other than products
Sample problem (a):

Rose Company provided the following data for 2013:
Dividend income from investments
Distribution income from trusts
Interest income on deposits
Income from bank treasury bills
Unrealized gain on forward contract designated as cash flow hedge
Income from dealing in securities and derivatives held for trading
Writedown of securities and derivatives held for trading
Other income
Finance cost
Administrative staff costs
Sundry administrative costs
Income tax expense
Required: Prepare a single statement of comprehensive income.
9,200,000
500,000
700,000
100,000
400,000
600,000
150,000
250,000
300,000
3,800,000
1,200,000
1,700,000
Expense-outflow of future economic benefits that increases equity, other than distribution or dividend paid to owners.
Expenses specifically, include the following:
Cost of sales or cost of goods sold
Distribution costs or selling expenses
Administrative expenses
Other expenses
Income tax expense

Cost of sales of a merchandising entity
Beginning inventory (BI)
Net cost of purchases* (NCOP)
Total goods available for sale (TGAS)
Ending inventory (EI)
Cost of sales (COS)
VS
Cost of goods sold of a manufacturing entity
XX
XX
Beginning raw materials (BRM/BDM)

Net cost of purchases (NCOP)
XX
XX
XX
(XX)
XX
Raw material available for use (RMAU)

Ending raw materials (ERM/EDM)
Raw materials used (RMU/DMU)
Direct labor (DL)
Factory overhead (FOH)
Total manufacturing cost (TMC)
XX
(XX)
XX
XX
XX
XX
Beginning work in process (BWIP)

Total goods placed in process (TGPIP)
Ending work in process (EWIP)
Cost of goods manufactured (COGM)
Beginning finished goods (BFG)
Total goods available for sale (TGAS)
Ending finished goods (EFG)
Cost of goods sold (COGS)
XX
XX
(XX)
XX
XX
XX
(XX)
XX
Gross purchases
Purchase returns, allowances and
XX
discounts
Net purchases
Freight in
*Net cost of purchases (NCOP)
(XX)
XX
XX
XX
Forms of IS
IS may be presented in two ways, namely:
1.
Functional presentation (Cost of sales method)-is the traditional and common form of IS. This form
classifies expenses according to their function as part of cost of sales, distribution cost, administrative activities
2.
and other activities.

Natural presentation (Nature of expense method)-expenses are aggregated according to their nature and
not allocated among the various functions within the entity. Expenses which are of the same nature are
grouped or aggregated and presented as one item.
4:13

Page 3
BMS, CPA
Sample problem (b):

Masay Company provided the following information for 2013:
Sales
Inventories-January 1:
Raw materials
Goods in process
Finished goods
Inventories-December 31:
Raw materials
Goods in process
Finished goods
Purchases
Direct labor
Indirect labor
Superintendence
Light, heat and power
Rent-factory building
Repair and maintenance-machinery
Factory supplies used
Sales salaries
Advertising
Depreciation-store equipment
Office salaries
Depreciation-office equipment
Depreciation-machinery
Sales returns and allowances
Interest income
Gain on sale of equipment
Delivery expenses
Accounting and legal fees
Office expenses
Earthquake loss
Gain from expropriation of assets
Income tax expense
7,500,000
200,000
240,000
360,000
280,000
170,000
300,000
3,000,000
950,000
250,000
210,000
320,000
120,000
50,000
110,000
400,000
160,000
70,000
150,000
40,000
60,000
50,000
10,000
100,000
200,000
150,000
250,000
300,000
100,000
320,000
Required:
1.
2.
3.
Prepare a statement of cost of goods manufactured

Prepare an income statement using the cost of sales method with supporting notes
Prepare an income statement using the nature of expense method with supporting notes
Statement of retained earnings (SRE)

It shows the changes affecting directly the retained earnings (RE) of an entity. Important data affecting the RE that should
be clearly disclosed in the SRE are:
Net income or loss for the period
Prior period errors
Dividends declared and paid to shareholders
Effect of change in accounting policy
Appropriation of retained earnings

Sample problem (c):
Reliable Company provided the following information for the year ended December 31, 2013:
Retained earnings-unappropriated, January 1
Overdepreciation of 2012 due to prior period error
Net income for 2013
Retained earnings appropriated for treasury shares (original balance is P500,000. It is reduced
4:13
200,000
100,000
1,300,00
0

Page 4
BMS, CPA
by P200,000 by reason of reissuance of the treasury shares)

Retained earnings appropriated for contingencies (beginning balance, P700,000. It is increased
300,000
by current appropriation of P100,000)

Cash dividend paid to shareholders
Change in accounting policy from FIFO to weighted average method-credit adjustment
800,000
500,000
150,000
Required: Prepare statement of retained earnings for 2013.

II.
Statement of changes in equity (SCE)
SCE is formal statement that shows the movements in the elements or components of the shareholders equity. The SRE
is now part of the SCE.
An entity shall present in the SCE the following:
1. Comprehensive income for the period.
2. For each component of equity, the effects of changes in accounting policies and corrections of errors.
3. For each component of equity, a reconciliation between the carrying amount at the beginning and end of the
period, separately disclosing changes from:
P/L
Each item of OCI
Transactions with owners in their capacity as owners showing separately contributions by and
distributions to owners
Under PAS 1, the holders of instruments classified as equity are simply known as owners
Sample problem (d):

On January 1, 2013, Martha Company had 6,000,000 authorized ordinary shares of P5 par, of which 2,000,000 shares
were issued and outstanding. The shareholders equity accounts on January 1, 2013 had the following balances:
Ordinary share capital
P 10,000,000
Share premium
7,500,000
Retained earnings
3,250,000
On January 5, Martha issued at P54 per share, 100,000 shares of P50 par, 9% cumulative, convertible preference share
capital. Martha had 250,000 authorized preference shares.
On February 1, Martha reacquired 20,000 ordinary shares for P16 per share. Martha uses the cost method.
On April 30, Martha had completed an additional public offering of 500,000 ordinary shares with P5 par value. The
shares were sold to the public at P12 per share.
On June 17, Martha declared a cash dividend of P1 per ordinary share, payable on July 10 to shareholders of record on
July 1. On November 6, Martha sold 10,000 shares of treasury for P21 per share.
On December 7, Martha declared the yearly cash dividend on preference share, payable on January 7, 2014, to
shareholders of record on December 31, 2013.
On January 17, 2014, before the books were closed for 2013, Martha became aware that the ending inventory on
December 31, 2012 was overstated by P200,000. The after-tax effect on 2012 net income was P140,000. The appropriate
correcting entry was recorded. After correction of the beginning inventory, net income for 2013 was P2,250,000.
Required:
Prepare a statement of changes in equity for the year ended December 31, 2013.
GROUP ACTIVITY:
Karla Company provided the following information for 2013:
4:13

Page 5

Purchases
4:13
BMS, CPA
5,250,000

Page 6

Purchase returns and allowances
Rental income
Distribution costs:
Freight out
Salesmens commission
Depreciation-store equipment
Merchandise inventory, January 1
Merchandise inventory, December 31
Sales
Sales returns and allowances
Sales discounts
Administrative expenses:
Officers salaries
Depreciation-office equipment
Freight in
Income tax
Loss on sale of equipment
Purchase discounts
Dividend revenue
Loss on sale of investment
BMS, CPA
150,000
250,000
175,000
650,000
125,000
1,000,000
1,500,000
7,850,000
140,000
10,000
500,000
300,000
500,000
250,000
50,000
100,000
150,000
50,000
Required:
1.
Prepare an income statement for the year using the functional presentation with supporting notes.
2. Prepare an income statement for the year using the natural presentation with supporting notes.
4:13

Page 7

F3 02 SCI and SCE Handouts

Uploaded by

Copyright:

Available Formats

F3 02 SCI and SCE Handouts

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

F3 02 SCI and SCE Handouts

Uploaded by

Copyright:

Available Formats

ACCTG 6-FINANCIAL ACCOUNTING AND REPORTING 3

I can do all things through Christ who strengthens me.>>Philippians

ACCTG 6-FINANCIAL ACCOUNTING AND REPORTING 3

An income statement (IS) showing the components of P/L.

Sale of merchandise to customers

I can do all things through Christ who strengthens me.>>Philippians

ACCTG 6-FINANCIAL ACCOUNTING AND REPORTING 3

Use of entity resources

Sample problem (a):

Cost of sales or cost of goods sold

Distribution costs or selling expenses

Income tax expense

Cost of goods sold of a manufacturing entity

Beginning raw materials (BRM/BDM)

Raw material available for use (RMAU)

Beginning work in process (BWIP)

and other activities.

I can do all things through Christ who strengthens me.>>Philippians

ACCTG 6-FINANCIAL ACCOUNTING AND REPORTING 3

Sample problem (b):

Prepare a statement of cost of goods manufactured

Statement of retained earnings (SRE)

Net income or loss for the period

Prior period errors

Dividends declared and paid to shareholders

Effect of change in accounting policy

Appropriation of retained earnings

I can do all things through Christ who strengthens me.>>Philippians

ACCTG 6-FINANCIAL ACCOUNTING AND REPORTING 3

by P200,000 by reason of reissuance of the treasury shares)

by current appropriation of P100,000)

Required: Prepare statement of retained earnings for 2013.

Each item of OCI

Sample problem (d):

I can do all things through Christ who strengthens me.>>Philippians

ACCTG 6-FINANCIAL ACCOUNTING AND REPORTING 3

I can do all things through Christ who strengthens me.>>Philippians

ACCTG 6-FINANCIAL ACCOUNTING AND REPORTING 3

I can do all things through Christ who strengthens me.>>Philippians

You might also like