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Other Comprehensive Income

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Other comprehensive income (OCI) determines income and expenses that are not recognized as a part of the profit and loss account. This income emerges as a line item below the income statement. It is gain or loss that has not been perceived.

Examples of other comprehensive incomes are:

  • Unrealized gain/loss on bonds
  • Unrealized gain/loss on investments that are accessible for sale
  • Foreign currency translation gains or loss
  • Pension plans gain or loss

Other comprehensive income can be described either net of related tax outcomes or before related tax outcomes with a single aggregate income tax expense.

Recognition of other comprehensive income
Indian Accounting standard 16 describes the accounting treatment for property, plant and equipment (PPE) to account for its investments; a company must determine the acquisition, its carrying amount and depreciation and impairment loss if any. When the cost sustained for acquiring a property, plant or equipment is specified as an asset cost, the company must determine the carrying amount.

The carrying amount is when the asset is recognized after deducting the accumulated depreciation and accumulated impairment loss. To regulate the carrying amount, the company can use the cost model or revaluation model.

If the revaluation model is chosen, the assets must be revalued on said date. The revalued amount will be the fair value of the revaluation date, less any subsequent accumulated depreciation and following assembled impairment loss.

When the asset is revalued, the amount can be more or less than the transfer amount. Therefore, this gain or loss on revaluation will be comprised in other comprehensive income.

The treatment of revaluation gain or loss as per Ind AS 16 is as follows:

  • An asset’s carrying amount is expanded due to a revaluation; the increase shall be recognized as other comprehensive income and accumulated on the liabilities side in equity under the heading – revaluation surplus. However, the increase shall be recognized in the profit and loss account in some instances to the range that it reverses a revaluation decrease of the same asset previously identified in the profit and loss account.
  • If an asset’s carrying amount is decreased due to a revaluation, the decrease shall be recognized in the profit and loss account. However, the reduction shall be recognized in other comprehensive income to the extent of credit balance existing in the revaluation surplus regarding that asset. The decrease recognized in other total income reduces the amount accrued in the equity under the subtitle of revaluation surplus on the liabilities side.

Reporting standards of other comprehensive income
According to accounting standards, other comprehensive income cannot be described as part of a company’s net income and cannot be comprised in its income statement. Instead, the figures are recorded as accumulated other comprehensive income under shareholders equity on the company’s balance sheet.

Unrealized items are only recorded as other comprehensive income. Once the transaction has been realized (For example- the company’s investments have been sold), it must be separated from the company’s balance sheet and recognized as a realized gain/loss on the income statement.

Importance of other comprehensive income
Other comprehensive income is a critical financial analysis measure for a more inclusive estimation of a company’s earnings and overall profitability. While the income statement endure a primary measure of the company’s profitability, other comprehensive income reform the reliability and clarity of financial reporting

The other income information cannot expose the company’s daily operations, but it can provide awareness on other essential items.

Disclosure of other comprehensive income
A company’s performance can be observed by its profit and loss statement. The items reported in the profit and loss account expound on the company’s operations; looking at the unrealized profit or loss can assemble investors for the future help them make decisions accordingly.

If a company runs overseas operations, the other income segment can understand the strength of the company’s foreign operations and assess foreign exchange variations. Finally, it helps discover the extent to which a company’s future pension liabilities may affect unrealized profits.

At AJSH, we assist our clients in bookkeeping, payroll, auditing, taxation, secretarial compliances, and preparation of financial statements ensuring compliance with applicable accounting standards. If you have any questions or wish to know more about OCI, kindly contact us.


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