Comprehensive Income — страница 2

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not include some of the items, but included in the equity section of the balance sheet. These items are: ·         Unrealized gains (losses) on available-for-sale securities ·         Change in foreign currency exchange rates ·         Adjustments to minimum pension liability ·         Hedging gains or losses. Unrealized gains or losses on available-for-sale securities take place when the fair market value of the securities is different than the one of the balance sheet. To be consistent with accounting regulations, the company has to correct its assets’ value on the balance sheet. These gains or losses do not appear

on the income statement because their effect might mislead the investors, in terms of temporary income of the company. On the other hand, the investors should be aware of these gains or losses, and this is the reason for comprehensive income to exist. The owner's equity section of the balance sheet accumulates these changes in the value of the securities. There are many multinational companies right now on the market. These companies are subject to gains or losses, the origin of which is change in exchange rates of the currencies. These gains or losses do not happen due to routine operation of the company and that is why they might mislead investors' opinion of the company. The effect of these changes is included in the comprehensive income. Underfunded pension obligation

necessitates an adjustment to the minimum liability in order to be consistent with accounting regulations. It is not an obligation for the company, but certainly influence future net incomes, and that is why it should be included in comprehensive income. The hedging gains or losses arise due to futures contracts. A change is the market value of a futures contract that qualifies as a hedge of an asset reported at fair value, unless earlier recognition of a gain or loss in income is required because high correlation has not occurred (SFAS #115). There are three ways to present comprehensive income: ·         A separate income statement is prepared ·         A comprehensive income is combined with

income statement ·         A comprehensive income is represented as a part of the statement of stockholder’s equity For some of the companies implementation of reporting comprehensive income had "negative" or positive effect on "bottom-line income." For instance, General Motor's had negative impact (-64.1%) and Citibank had positive (18.3%). Out of 24 major corporations, 15 reported a lower comprehensive income than their net income, and only nine of them displayed an increase in comprehensive income in comparison with net income. Increased (decreased) by General Motors -64.10% Wal-mart -15.00% Coca-Cola -14.90% Procter & Gamble -11.70% Chase-Manhatan -11.50% Ford Motor -10.80% IBM -9.70% Johnson & Johnson

-9.40% Texaco -7.70% Eli Lilly -6.30% Phillip Moris -3.90% Exxon -2.80% Mobil -1.60% Dupont -0.60% Merck -0.30% Chrysler 0 Hewlett Packard 0 Disney 0.10% BankAmerica 0.60% Microsoft 0.70% AT&T 0.80% Intel 1.40% NationsBank 2.90% Pepsico 3.50% General Electric 7.60% Citibank 18.30% Such new standards are often a source of frustration, especially to smaller, nonpublic entities and their CPAs. This frustration, often called standards-overload, arises both from the frequent issuance of new and often complicated standards and from the lack of perceived information benefit in financial statements. The overload and implementation costs stemming form SFAS #130 can be substantially eliminated through reclassification of the available-for-sale securities as trading securities, and this

is what small private corporations usually do. Regarding reporting financial performance, international standards say the following: ·         IAS 1 requires presentation of a statement showing changes in equity. Various formats are allowed: 1)           The statement shows (a) each item of income and expense, gain or loss, which, as required by other IASC Standards, is recognized directly in equity, and the total of these items, certain foreign currency translation gains and losses (IAS 21, The Effects of Changes in Foreign Exchange Rates), and changes in fair values of financial instruments (IAS 39, Financial Instruments: Recognition and Measurement)) and (b) net profit or loss for the