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At the end of this module:

1. I can identify the elements of the SCI and describe each of these items for a service business and
a merchandising business
2. I can prepare an SCI for service business and a merchandising business
3. I can prepare an SCI for a merchandising business the multistep approach

STATEMENT OF COMPREHENSIVE INCOME

- Short for “Statement of Profit or Loss and other comprehensive income”
- Is the 2nd component of a complete set of financial statements.
- Shows information on an entity’s financial performance during the period.
- It shows the following
o Profit or Loss
o Other comprehensive income; and
o Comprehensive income

Income Statement Vs. Statement of Comprehensive Income

Income Statement Statement Of Comprehensive Income

Income P1,000 Income P1,000
Expenses (600) Expenses (600)
Profit or Loss P400 Profit or Loss P400
Other Comprehensive Income 50
Comprehensive Income P450

The standard requires entities to present a “Statement of Profit or loss and other comprehensive
income.” Meaning, representing an income statement alone without “other comprehensive
income” is prohibited.

The standards allow the presentation on an income statement together with the statement of
comprehensive income. This is called “two statement presentation.”

SINGLE-STATEMENT VS. TWO-STATEMENT PRESENTATION

1. Single-statement Presentation:

ABC. Co.
Statement of Comprehensive Income
For the period ended December 31, 2022
Income P1,000
Expenses (600)
Profit for the Year 400
Other Comprehensive Income 50
Comprehensive income for the year P450

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 2. Two-statement presentation:
a. First of two statements- the “Income Statement”

ABC. Co.
Income Statement
For the period ended December 31, 2022
Income P1,000
Expenses (600)
Profit for the Year P400

b. Second of two statements

ABC. Co.
Statement of Comprehensive Income
For the period ended December 31, 2022
Profit or Loss P400
Other comprehensive Income 50
Comprehensive income P450

**We will use the Single-statement Presentation in all our succeeding studies.

ELEMENTS OF STATEMENT OF COMPREHENSIVE INCOME

1. Income- is increases in economic benefits during the period in the form of increases in
assets, or decreases in liabilities, that result in increase in equity, excluding those relating
to investments by the business owner.
a. Revenue- arises in the course of the ordinary activities of a business, e.g., sales
and service fees.
i. Service Fees refer to revenue earned by a service business from rendering
services.
ii. Sales revenue or Sales refer to the revenue earned by a merchandising
business from selling goods.
b. Gains represent other items that meet the definition of income and may or may
not arise in the course of the ordinary activities on an entity.
2. Expenses are decreases in economic benefits during the period in the form of decreases
in assets, or increases in liabilities, that result in decreases in equity, excluding those
relating to distributions to the business owner.
a. Expenses arise in the course of ordinary activities of a business
b. Losses represent other items that meet the definition of expenses and may or
may not arise in the course of the ordinary activities of the entity.

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ILLUSTRATION: SCI of Service Business
The trial balance of ABC Co. on December 31, 2021 shows the following information:

Accounts Dr Cr
Service fees P870,000
Interest income 60,000
Gains 20,000
Salaries Expense P300,000
Rent Expense 30,000
Utilities Expense 20,000
Supplies Expense 10,000
Depreciation Expense 40,000
Taxes and Licenses 70,000
Transportation and travel expense 5,000
Interest Expense 2,000
Miscellaneous Expense 1,000
Losses 15,000
Totals P493,000 P493,000

Requirement: Prepare the Statement of Comprehensive Income.

SOLUTION:

ABC. Co.
Statement of Comprehensive Income
For the period ended December 31, 2022
INCOME
Service Fees P1870,000
Interest Income 60,000
Gains 20,000
TOTAL INCOME 950,000
Less: EXPENSES
Salaries Expense P300,000
Rent Expense 30,000
Utilities Expense 20,000
Supplies Expense 10,000
Depreciation Expense 40,000
Taxes and Licenses 70,000
Transportation and travel expense 5,000
Interest Expense 2,000
Miscellaneous Expense 1,000
Losses 15,000
TOTAL EXPENSES 493,000

Profit for the Year 457,000

Other Comprehensive Income -
Comprehensive income for the year P457,000

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PRESENTATION OF EXPENSES
Expenses may be presented in the statement of comprehensive income using either of the
following methods:
1. Nature of expense method
2. Function of expense method (Cost of sales method)

Nature of Expense Method

• Expenses are presented according to its nature
o Example: depreciation, purchases of materials, transportation costs, employee
benefits, advertising costs, etc.)
• are not reallocated among their functions within the entity.
• is simple to apply because no reallocations of expenses are necessary

Functions of Expense Method

• assets are classified and presented according to their function as part of cost of sales or,
for example, the cost of distribution or administrative activities.

Major categories of expenses by the function of expense method:

1. Cost of sales (or Cost of goods sold)
2. Distribution Cost (or selling expense)
3. Administrative expense (or General and administrative expenses)
4. Other expenses
5. Interest expense (or Finance Cost)
6. Income tax expense

• Distribution Costs ( or Selling expenses) – are costs attributable to selling activities.

o Examples: freight-out pr delivery expenses, sales commissions, advertising,
salaries of sales personnel, depreciation on delivery equipment, rent pertaining
to space occupied by the sales department, and the like.
• Administrative Expenses – is a residual category of expenses, meaning an expenses that
does not qualify for classification under the other categories (i.e. numbers 1, 2 and 4 to
6 ) is included in this category.
o Examples: insurance, taxes and licenses (except income tax expense), salaries of
non-sales personnel, depreciation of assets not used by the sales department,
rent pertaining to office space, and the like.
• Other expenses—includes losses, like casualty losses and losses on sale of properties.
• Income tax expense- includes taxes on income. Other taxes are presented in the
administrative expenses category under the “taxes and licenses” account.

INTEGRATION OF FAITH AND LEARNING:

Expenses has variety of functions in accounting. Like the importance of it gives importance to a
financial report, and so are we. We are the ones that completes Christ’s workmanship. WE are to
work as Christ worked. As you engage yourself in your future work, you are to remember that man
has a body as well as a soul to save. Both are to be restored to health by God’s simple but
affectatious methods.

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ILLUSTRATION: Function of Expenses
The accounts of an entity show the following balances:

Cost of goods sold P250,000

Insurance expense 120,000
Advertising expense 18,000
Freight-out 36,000
Loss on sale of equipment 4,000
Rent expense (one-half pertains sales department) 120,000
Salaries expense (1/4 pertains to non-sales personnel) 200,000
Sales commission expense 20,000
Bad debts expenses 6,000
Interest payable 1,000

Requirements: Determine the amounts of expenses classified as

• Distribution cost
• Administrative expenses

Solution:
(1) Selling expenses

Advertising expense P18,000

Freight-out 36,000
Rent expense (120,000 x ½ ) 60,000
Salaries expense (200,000 x ¾ ) 150,000
Sales commission expense 20,000
Selling Expenses P284,000

(2) Administrative expenses

Insurance Expense P120,000

Rent expense (120,000 x ½ ) 60,000
Salaries expense (200,000 x ¼ ) 50,000
Bad Debts expense 6,000
Selling Expenses P284,000

**NOTE
a. 1 minus ¼ pertaining to non-sales personnel = ¾ pertaining to sales personnel)
b. Bad debts expense is classified as administrative expenses.

** Cost of goods sold is presented separately

** Loss on sale of equipment is presented under the “Other expenses” category. However,
material amounts of losses shall be presented separately.
** Interest Payable is presented separately.

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ILLUSTRATION: SCI of a Merchandising Business
The nominal accounts columns of the trial balance of ABC Co. on December 31, 2021 show the
following information:

Accounts Dr Cr
Sales P900,000
Interest Income 60,000
Gains 20,000
Inventory, Beg. P50,000
Purchases 200,000
Freight-in 10,000
Purchase returns 5,000
Purchase discounts 7,000
Freight-out 25,000
Sales commission 30,000
Advertising expense 15,000
Salaries expense 300,000
Rent expense 30,000
Depreciation expense 40,000
Utilities expense 20,000
Supplies expense 10,000
Transportation and travel expense 5,000
Insurance expense 12,000
Taxes and licenses 70,000
Interest expense 2,000
Miscellaneous expense 1,000
Loss on sales of equipment 15,000

Totals P835,000 P835,000

Additional Information:
a. Ending inventory is P80,000
b. On-half of the salaries, rent and depreciation expenses pertains to the sales
department. The sales department does not share in the other expenses.

Requirements: Prepare the Statement of Comprehensive Income using the Nature of expense
method (Single-step approach).

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 SOLUTION:

Single-step Approach

ABC. Co.
Statement of Comprehensive Income
For the period ended December 31, 2022
INCOME
Sales P900,000
Interest Income 60,000
Gains 20,000
TOTAL INCOME 980,000
Less: EXPENSES
Net purchases 198,000
Change in inventory (30,000)
Freight-out 25,000
Sales commission 30,000
Advertising expense 15,000
Salaries expense 300,000
Rent expense 30,000
Depreciation expense 40,000
Utilities expense 20,000
Supplies expense 10,000
Transportation and travel expense 5,000
Insurance expense 12,000
Taxes and licenses 70,000
Interest expense 2,000
Miscellaneous expense 1,000
Loss on sale of equipment 15,000
TOTAL EXPENSES 743,000

Profit for the Year 237,000

Other Comprehensive Income -
Comprehensive income for the year P237,000

**”Net Purchases” is computed as follows:

Purchases P200,000
Freight-in 10,000
Purchase returns (5,000)
Purchase discounts (7,000)
Net Purchases P198,000

**”Change in Inventory” is the difference between beginning inventory and ending inventory. It is computed
as follows:

Inventory, beg. P50,000

Inventory, end 80,000
Change in inventory-increase (P30,000)

**an increase in inventory is a deduction

**A decrease in inventory is an addition

Notice the inverse relationship.

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Activity 1:

The trial balance of Entity A shows the following items of income and expense for the period
ended December 31, 20x1:

Accounts Dr. Cr.

Sales 1,800,000
Interest income 120,000
Gains 40,000
Inventory, beg. 100,000
Purchases 400,000
Freight-in 20,000
Purchase returns 10,000
Purchase discounts 14,000
Freight-out 50,000
Sales commission 60,000
Advertising expense 30,000
Salaries expense 600,000
Rent expense 60,000
Depreciation expense 80,000
Utilities expense 40,000
Supplies expense 20,000
Transportation and travel
expense 10,000
Insurance expense 24,000
Taxes and licenses 140,000
Interest expense 4,000
Miscellaneous expense 2,000
Loss on the sale of equipment 30,000
Totals 1,670,000 1,984,000

Additional information:
a. Ending inventory is ₱160,000.
b. One-half of the salaries, rent, and depreciation expenses pertain to the sales department.
The sales department does not share in the other expenses.

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Requirements:
a. Prepare the statement of comprehensive income using the function of expense method
(Single-step approach). Use the pro-forma statement used from the previous example. Be sure
to place a proper heading for the statement.

Resources:
Fundamentals of Accountancy, Business and Management 2, Senior High School (ABM)
Specialized Subject, DEPED K12, Rodel C. Ferrer, Zeus Vernon B. Millan

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