In financial reporting, comprehensive income includes all of the following except which item?

Introduction / Context:
Comprehensive income is an important concept in modern accounting standards such as IFRS and many national GAAP frameworks. It aims to capture the total change in equity of a company during a period, excluding changes resulting from transactions with owners. Interview and exam questions often test whether candidates can distinguish between items that affect comprehensive income and those that are owner transactions. Knowing this difference helps in correctly interpreting financial statements and equity changes.

Given Data / Assumptions:

• Financial statements report profit or loss, other comprehensive income and changes in equity.
• Comprehensive income captures all recognised income and expense items for a period, excluding owner related transactions.
• Owner transactions include contributions by owners and distributions to owners.
• The question asks which item is not part of comprehensive income.

Concept / Approach:
Comprehensive income includes both net profit or loss and other comprehensive income items such as certain revaluation gains, foreign currency translation differences and some unrealised gains or losses. These items represent changes in the company economic resources and obligations from non owner sources. In contrast, contributions by owners (such as issuing new shares or capital injections) and distributions to owners (such as dividends or share buybacks) are treated as direct changes in equity, not as components of comprehensive income. The key rule is that comprehensive income excludes owner related transactions.

Step-by-Step Solution:
Step 1: Define comprehensive income as the total change in equity during a period arising from transactions and other events from non owner sources. Step 2: Identify income components such as revenues, expenses, gains and losses from normal operations and from other recognised events. Step 3: Recognise that expenses and losses, including some unrealised items recorded in other comprehensive income, are part of comprehensive income. Step 4: Note that extraordinary or unusual items, where applicable under specific standards, if recognised in profit and loss or other comprehensive income, still form part of comprehensive income. Step 5: Identify contributions by owners as direct equity transactions, such as issuing shares for cash, which do not pass through the statement of comprehensive income. Therefore, they are excluded from comprehensive income.

Verification / Alternative check:
Consider a company that, in one year, earns profit from sales, incurs operating expenses, recognises a foreign currency translation gain in other comprehensive income and issues new shares to raise capital. The profit, expenses and translation gain all affect total comprehensive income because they reflect changes in the company net resources from external economic activities. However, issuing new shares is a transaction with owners: the entity receives cash and, in exchange, increases share capital and share premium. This transaction is recorded directly in equity and does not go through the statement of comprehensive income. This confirms that contributions by owners are excluded from comprehensive income.

Why Other Options Are Wrong:
Option A, expenses, are part of profit or loss and therefore included in comprehensive income. Option C, extraordinary items or unusual gains and losses, if recognised under applicable standards, still contribute to profit or loss or other comprehensive income, so they are included. Option D, losses, including unrealised losses recorded in other comprehensive income, are also part of comprehensive income. Option E, revenues and other gains, plainly form part of income. Only option B, contributions by owners, represents a direct equity transaction that is outside comprehensive income.

Common Pitfalls:
A frequent confusion is to treat all changes in equity as part of comprehensive income. This is incorrect because equity can change from owner transactions as well as from income and expense. Students also sometimes mix dividends with expenses, but dividends are distributions to owners and bypass the statement of comprehensive income. In exams and interviews, remembering the phrase “comprehensive income excludes owner contributions and distributions” will help you quickly identify which items belong in comprehensive income and which are treated separately in the statement of changes in equity.

Final Answer:
Comprehensive income includes all recognised income and expense items from non owner sources; it does not include contributions by owners.