Other comprehensive income

Definition of Other Comprehensive Income

Other comprehensive income contains all changes that are not permitted to be included in profit or loss. It is particularly valuable for understanding ongoing changes in the fair value of a company's assets. Items that you should insert in other comprehensive income include:

  • Available-for-sale securities fair value changes that were previously written down as impaired
  • Available-for-sale securities unrealized gains and losses
  • Cash flow hedge derivative instrument gains and losses
  • Debt security unrealized gains and losses arising from a transfer from the available-for-sale category to the held-to-maturity category
  • Foreign currency gains and losses on intra-entity currency transactions where settlement is not planned or anticipated in the foreseeable future
  • Foreign currency transaction gains and losses that are hedges of an investment in a foreign entity
  • Foreign currency translation adjustments
  • Pension or post-retirement benefit plan gains or losses
  • Pension or post-retirement benefit plan prior service costs or credits
  • Pension or post-retirement benefit plan transition assets or obligations that are not recognized as a component of the net periodic benefit or cost

It is acceptable to either report components of other comprehensive income net of related tax effects, or before related tax effects with a single aggregate income tax expense or benefit shown that relates to all of the other comprehensive income items.

The items to be included in this classification may be only rarely encountered by a smaller business, so this type of organization may only occasionally report other comprehensive income.

Example of Other Comprehensive Income

An example of a possible format for reporting other comprehensive income in the income statement is:

Guttering Candle Company
Statement of Income and Comprehensive Income
For the Year Ended December 31, 20X1

 Revenues   $1,000,000 
 Expenses   800,000 
 Net income   200,000 

   
 Other comprehensive income, net of tax:    
 Foreign currency translation adjustments   10,000 
 Unrealized gains on securities:    
 Unrealized holding gains arising during the period $12,000  
 Less: reclassification of gains included in net income (3,000)  
    9,000 
 Defined benefit pension plans:    
 Net loss arising during the period (2,000)  
 Prior service cost arising during the period (4,000)  
 Less: amortization of prior service cost included in net periodic pension cost 1,000  
    (5,000) 
 Other comprehensive income   14,000 
 Comprehensive income   $214,000 


You should list the total of other comprehensive income for each reporting period to a component of equity that is displayed separately from retained earnings and additional paid-in capital in the balance sheet, and call it accumulated other comprehensive income. An example showing the placement of this line item within the equity section of an entity’s balance sheet follows:

Equity:  
Common stock $1,000,000
Paid-in capital 10,000
Retained earnings 450,000
Accumulated other comprehensive income 25,000
Total equity $1,485,000

Additional Issues Related to Other Comprehensive Income

If an item listed in other comprehensive income becomes a realized gain or loss, you then shift it out of other comprehensive income and into net income or loss. This can happen, for example, when you sell an investment security for which you already recorded an unrealized gain in other comprehensive income. At the point of sale, this is now a realized gain, which shifts into net income. A company can display this reclassification adjustment either on the face of the financial statements, or in the accompanying notes.

Total comprehensive income is the combination of profit or loss and other comprehensive income.