The New FRS 1 is applicable from 1st Jan 2009 onwards (so for a Sept yr end company, and closing its year on Sept 09, it’s not applicable until new FY).
They are changing the P&L format again. The concept of “Comprehensive Income” is introduced, which comprises all the gains and losses that are required to be recognized in the P&L and all the gains and losses that are required to be recognized directly in the reserves.
The economic income of a firm is the increase in its net worth, except those arising from transactions with owners of the firm in their capacity as owners. Traditional accounting profit comprises only all those gains and losses that are required to be recognized in the P&L. From table below, one would note that the Comprehensive income basically expands the traditional accounting measurement to include items previously recognized directly into reserves.
In conclusion, the Comprehensive income is better able to reflect the firm’s economic income but it still does not fully reflect the economic income.
Note:
FRS 1 allows presentation in 2 different formats – (i) The Statement of Comprehensive Income in a single statement; or (ii) 1 traditional P&L and 1 Statement of Comprehensive Income. This is confusing because the Statement of Comprehensive Income in the above 2 choices represent different things. Under (i) it is truly a comprehensive statement, while under (ii) it only represents those unrealized gains & losses that would have gone direct to reserves. My recommendation is to adopt option (i) for its simplicity for users of financial statements.
The attached real life example is a good representation of the above.
