CASE 6‐9 Comprehensive Income
Earnings as defined in SFAC No. 5 are consistent with the current operating performance concept of income. Comprehensive income is consistent with the all‐inclusive concept of income.
1. Discuss the current operating performance concept of income. The current operating performance concept is a method that measures the efficiency of a company. The concept measures the effectiveness of the entity's use of its resources in operating the business and generating profit. The income under this method can include factors acquired in a previous period but used in the present one. Under this concept, only changes and events under the control of management that results …show more content…
5 defines earning as a reflect to the current operating performance concept. It includes all of what is in present net income for a period, but it excludes cumulative effects of changes in accounting principle. Earning does not include the cumulative effect of certain accounting adjustments of earlier periods that are recognized in the current period because it rates to the past and they are not relevant when assessing current operating performance. These effects are the accumulation of differences in earning of prior periods that would have occurred if the new method ben used in the past rather than the old …show more content…
The changes here would include the changes in price level and the changes due to the cumulative effects of accounting change. Thus, comprehensive income which claim to measure theses changes relies upon the financial capital maintenance concept and thus it is consistent with it. Income is only recognized after capital has been maintained. Capital maintenance can be reached when the amount of a company's capital at the end of a period did not go below what it was in the beginning of the period. The financial capital maintenance concept has two forms: the financial capital maintenance concept and the physical maintenance concept. The financial capital maintenance concept supposes that a company has income only if the net assets at the end of a period exceeds the amount of net assets at the beginning of the period after excluding the effects of transactions with the owners. However, the physical capital maintenance assume that a company has income if the physical productive capacity of the company at the end of the period exceeds the physical productive capacity at the beginning of the period after excluding the effects of transactions with