1. Copyright © 2010 McGraw-Hill Ryerson Ltd Slides prepared by Ingrid McLeod-Dick – Finance Department – Schulich School of Business Intermediate Accounting 5 th ed. Intermediate Accounting 5 th ed. Thomas H. Beechy Schulich School of Business York University Joan E. D. Conrod Faculty of Management Dalhousie University Elizabeth Farrell Schulich School of Business York University

2. Copyright © 2010 McGraw-Hill Ryerson Ltd   3-2 Statement of Income and Comprehensive Income Chapter 3

3. Copyright © 2010 McGraw-Hill Ryerson Ltd   3-3 What Does the Term “Income” Mean?  “Income” may refer to only revenues; or  “Income” may refer to ancillary sources of revenue such as “interest income”; or  “Income” or “net income” may refer to profit or loss for the period which might also be referred to as “earnings”  Be careful to understand how the term is being used LO 3-1

4. Copyright © 2010 McGraw-Hill Ryerson Ltd   3-4 Economic Income vs. Accounting Income  Economic Income: an increase in the wealth of a corporation; a measure of income based on events rather than transactions.  Accounting income: Using the historical cost measurement principle, accounting income is an increase in the reported wealth of a corporation based on actual transactions completed. LO 3-1

5. Copyright © 2010 McGraw-Hill Ryerson Ltd   3-5 Economic Income vs. Accounting Income (cont’d)  IFRS standards are moving towards the concept of economic income since some “value changes” are recognized, even though no transaction has occurred: Financial assets and liabilities are reported at fair value at each reporting period Companies may choose to fair value PP&E and investment properties Biological assets are measured at fair value less costs to sell LO 3-1

6. Copyright © 2010 McGraw-Hill Ryerson Ltd   3-6 Comprehensive Income  Defined as all changes to owner’s equity that are not the result of transactions with owners  Includes: Periodic profit or loss; and Other comprehensive income (OCI) LO 3-1

7. Copyright © 2010 McGraw-Hill Ryerson Ltd   3-7 Comprehensive Income Statement  These amounts may be presented as: a single continuous statement called the Statement of Comprehensive Income (preferred presentation format); or two separate statements - called the Income Statement and the Statement of Comprehensive Income (which starts with the profit of loss) LO 3-1

8. Copyright © 2010 McGraw-Hill Ryerson Ltd   3-8 Other Comprehensive Income (OCI)  OCI includes changes in values that have not been realized which might represent: Items that will be recognized in income once realized (i.e. fair value changes in financial assets) Items that will be matched by an offsetting gain or loss in a future period (i.e. a qualifying hedge of a future transaction) Items that will impact retained earnings directly and not “recycle” through to net earnings (i.e. revaluation surpluses on property, plant and equipment) LO 3-1