Comprehensive income

IS 0

  • Comprehensive income(2): more inclusive measure,  includes all changes in equity except for owner’s distribution and contribution 
    • Net income 
    • Other comprehensive income (3): Some that is NOT included in net income
  • Foreign currency translation gains and losses
  • Adjustment for minimum pension liability
  • Unrealized gains and  losses from cash flow hedging derivatives
  • Unrealized gains and losses from available-for-sale securities
    • available-for-sale securities: a debt or equity security purchased with the intent of selling before it reaches maturity
    • Not reported in income statement
    • Reported directly in stockholders’ equity
  • Long-lived assets at fair value

Notes: 

  • Derivatives: 
    • A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset (like a security) or set of assets (like an index).
    • secondary securities whose value is solely based on the value of the primary security 
    • Futures contracts, forward contracts, options, swaps, warrants…
  • Hedge
    • A hedge is a financial transaction that reduces or fully eliminates the risk associated with another transaction.
  • Fair value
    • rational and unbiased estimate of the potential market price of a good, service, or asset.
  • 3 classification of securities 
    • Available for Sale: The firm plan on holding for a long period of time but could also be sold
    • Held for Trading: Held primary for sale in short term 
    • Held to Maturity : The firm plan on holding until maturity
  • Type of hedge
    • Cash flow hedge
      • Hedge of the exposure to variability in cash flows that attributable to a particular risk associated with a recognized asset or liability
    • Fair Value Hedge
      • Hedge of the exposure to changes in fair value of a recognized asset or liability
    • Hedge of a net investment in a foreign operation