The Statement of Changes in Equity is a key financial statement that outlines the changes in a company’s equity during a specific period. This statement includes comprehensive income, which encompasses all changes in equity except those resulting from transactions with owners. Below are three diverse, practical examples that illustrate how comprehensive income affects the statement of changes in equity.
Tech Innovations Inc. is a technology startup that has experienced significant growth over the past year. The company generated a net income of $200,000 and reported other comprehensive income items, including unrealized gains on available-for-sale securities amounting to $50,000. This example demonstrates how comprehensive income is calculated and presented in the statement of changes in equity.
At the beginning of the year, Tech Innovations Inc. had retained earnings of $300,000 and no other equity changes. The statement of changes in equity for the year would look like this:
| Description | Amount |
|---|---|
| Beginning Retained Earnings | $300,000 |
| Add: Net Income | $200,000 |
| Add: Other Comprehensive Income | $50,000 |
| Ending Retained Earnings | $550,000 |
The total comprehensive income for the year amounts to $250,000, which is the sum of net income and other comprehensive income. This example illustrates how both components contribute to the overall change in equity.
Green Earth Holdings is an environmentally focused company that generates income through sustainable practices. For the current year, Green Earth reported a net income of $150,000 and paid dividends of $30,000 to its shareholders. The company also recognized $20,000 in other comprehensive income from foreign currency translation adjustments.
At the start of the year, the company had retained earnings of $400,000. Here’s how the statement of changes in equity would appear:
| Description | Amount |
|---|---|
| Beginning Retained Earnings | $400,000 |
| Add: Net Income | $150,000 |
| Less: Dividends | ($30,000) |
| Add: Other Comprehensive Income | $20,000 |
| Ending Retained Earnings | $540,000 |
In this case, the total comprehensive income is $140,000, calculated as net income plus other comprehensive income minus dividends. This example highlights the effect of dividends on retained earnings and how comprehensive income still adds value to equity.
Global Manufacturing Corp. is an established company that specializes in producing industrial equipment. For the financial year, the company reported a net income of $500,000. Additionally, it issued $200,000 worth of new shares, which affected its share capital. The comprehensive income also included a loss of $30,000 from cash flow hedges.
Beginning the year with retained earnings of $1,000,000 and share capital of $500,000, the statement of changes in equity would be structured as follows:
| Description | Amount |
|---|---|
| Beginning Share Capital | $500,000 |
| Add: New Shares Issued | $200,000 |
| Total Share Capital | $700,000 |
| Beginning Retained Earnings | $1,000,000 |
| Add: Net Income | $500,000 |
| Less: Other Comprehensive Income | ($30,000) |
| Ending Retained Earnings | $1,470,000 |
In this example, the total comprehensive income is $470,000, derived from net income less other comprehensive income. The issuance of new shares contributes to the company’s equity, demonstrating how equity transactions can impact the statement of changes in equity.
These examples of the statement of changes in equity with comprehensive income provide a clear understanding of how different components contribute to the overall equity picture, helping stakeholders make informed decisions.