total comprehensive income


I am bit stuck on a question regarding FRA which is about total comprehensive income.

The question was is most likely to impact total comprehensive income:

a. unrealized gains on derivatives used for heding

b. dividends paid to shareholders

c. cash paid to retire bond

Ok, so what it was I thought:

a. is part of the Other comprehensive income

b. Diminished net income, and thus retained earnings (i.e. less equity)

c. will diminish asset and liability, no impact on equity.

So c is out. Now, I am struggling between a and b because I understood that (do not hesitate to correct me, something must be wrong):

Comprehensive income= net income + OCI.

In the question, they use the term “total comprehensive income” which I thought to be Comprehensive income (not sure about that though…). So as A impacts OCI and b impacts net income, I wasn’t sure about what answer was correct (it’s a).

Coudl you please help me?

By the way, I did a mock exam yesterday: morning 77.5 and afternoon 72 (within time, although less focused during the last 20 mn of each session). Is that fair enough 12-13 days before the exam? I’m feeling so bad about this question…


Are you sure the question wasn’t “What is most likely to increase total comprehensive income?”

Or “What is most likely to impact other comprehensive income?”

Because both “a” and “b” impact Total CI. However, “a” increase Total CI and “b” decreases Total CI. As you said above “a” impacts OCI and “b” impacts net income, so Total CI.

If the question was written as you said, I tell you that at the real exam this kind of problems won’t happen. If they occur, then free points are delivered (for unbiguous, bad structured or incorrect questions).

Personally, I would also have chosen “b”, because commonly dividend distributions impact “harder” the Total CI.

Relax about this and continue hitting the books. I think you are very likely to pass L1.

Good Luck!

Thanks Harrogath for the kind words.

I rechecked and the question is effectively “which of the following is most likely to impact total comprehensive income”.

So total comprehensive income is indeed comprehensive income (can seem stupid but I though maybe there was a trickery in the wording…).

their explained answer is (which I don’t really understand, by the way): dividends paid to shareholders are excluded because total comprehensive income is defined as the change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners. Diviend paid will affect retained earnings and will therefore affect the statement of changes in equity (SOCIE)

I knew that dividend was subtracted from Net Income and assumed that this happened on income statement. But a quick google search proves otherwise.

Dividends are not included in income statement. Thanks for the question.

Ok, the hidden fact was that Total CI does not count for transactions between the company and owners, so dividends are excluded. Hence when calculating Total CI you use net income, not net income after dividends. Could be a little confusing because retained earnings are aumented by net income after dividends, so also equity. Didn’t know that at all. Correct answer is A.

Good question by the way. Keep achieving!!

Yes, that’s right, the transaction to owners are excluded. They are accounted apart from Total CI, not inside Total CI.

Thanks Gigaloo!!

OCI = other changes in equity positions (beside net income from regular P/L (Income statement)) except transactions to and from equity participants (owners, shareholders or anyhow you call them), those are outflows in form of paid dividends or inflows in form of recapitalisation.

Changes in equity based on dividends paid or increase in equity based on recapitalisation are not recorded in OCI than is shown in Changes in Equity statement.

Also USGAAP and IFRS different require what items should be stated in OCI, be aware about this.

Hi flashback, regarding US-GAAP and IFRS, are you talking about defined benefit plan?

and about the revaluation model as well (IFRS)?

Yes but not only. There are also differences about AFS securities (revaluation surplus account changes in IFRS while there is not such account in USGAAP).

Yepp. Revaluation is not permitted under USGAAP, not only related to AFS securities than on fixed assets as well.

In IFRS all changes in equity based on revaluation should be recorded in OCI and discloused in Notes. Also, under IFRS if firm decide to revaluate any asset, all asset within same class are required to be revaluated as well.

oh yes, available-for-sale if the change occurs from a foreign exchange rate… that’s true! thanks

You are right. Keep the curriculum material. Remember differences in OCI between IFRS and USGAAP in domain of DB (as actuarial gains/losses in IFRS etc.) and of course, in domain of revaluation. There are actually more differences but it is not stated in Curriculum so ignore them.

Lol, I should say thanks to you. Your questions keep on improving my understanding.

Dividends have nothing to do with income; they’re financing.

Issuing and retiring bonds have nothing to do with income; they’re financing.

hi again flashback

I was thinking about what you said about OCI and the AFS…

I noted the following:

AFS-> realized gains/losses --> will be in income statement

AFS->UNrealized gains/losses–> bypasses net income statement, goes directly in the OCI (and thus increases or decreases equity).

Then about the stuff with the exchange rate…

I noted that when there is an unrealized gain/loss on AFS because of foreign exchange variation:

IFRS->net income


Is there something I am missing?

Much appreciated

First you have specify on which BS position are related FX differences. Accounting treatment is different for various positions.

You asked for AFS securities which are denominated in currency other than reporting currency (domicile of Entity).

First quick search in Google show this this excerpt taken from the certain 10-K fillings:

"For purposes of determining the change in fair value to be reported in equity, the portion of the change in value relating to foreign currency exchange rate changes that occur during the period are reported in earnings and are not deferred in stockholders’ equity for IFRS.

Under U.S. GAAP, under the guidance in EITF 96-15 “Accounting for the Effects of Changes in Foreign Currency Exchange Rates on Foreign-Currency-Denominated Available-for-Sale Debt Securities,” as amended by SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” changes in value of AFS securities that result from changes in foreign currency exchange rates are reported in shareholders’ equity and transferred to earnings as a component of gain or loss only upon sale of the instrument." (what means realized loss/gain - my comment).

Dividends are substracted from Net Income, the line comes “below” in the Income Statement. Thus, it doesn’t enter the total comprehensive income equation that you correctly stated at the beginning.

Regarding AFS: for IFRS, changes in foreign exchange go to P&L, for US GAAP the go directly to Equity as I recall (together with the unrealized changes).