Other comprehensive income under FRS 102

Other comprehensive income is the set of gains and losses that FRS 102 requires or permits to be recognised outside profit or loss, such as property revaluation surpluses, remeasurements of defined benefit pension schemes, foreign exchange differences on translating overseas operations and the effective part of cash flow hedges. Profit or loss plus other comprehensive income equals total comprehensive income, and the amounts usually build up in a separate reserve rather than in retained earnings.

What is other comprehensive income?

The FRS 102 glossary defines other comprehensive income as items of income and expense, including reclassification adjustments, that are not recognised in profit or loss as required or permitted by the standard or by law. Total comprehensive income is the change in equity in a period from transactions and other events, other than transactions with equity participants, and equals profit or loss plus other comprehensive income.

The starting point is that everything goes through profit or loss. Paragraph 2.93 says the income statement is the primary source of information about performance, so all income and expenses are in principle included in it unless FRS 102 requires or permits otherwise, or the Companies Act 2006 prohibits it. Other comprehensive income is therefore a closed list of exceptions set by individual sections of the standard, not a place where preparers can choose to put unwelcome items.

Which gains and losses bypass profit or loss?

The main items under FRS 102 are:

Item	Where the rule is	Recycled to profit or loss later?
Revaluation increase on property, plant and equipment	Paragraph 17.15E	No; may be transferred to retained earnings when realised
Remeasurement of a defined benefit pension liability, including actuarial gains and losses	Paragraphs 28.23(d) and 28.25	No, paragraph 28.25A
Exchange differences on translating a foreign operation into the presentation currency	Paragraph 30.18(c)	No; transferred to retained earnings on disposal under paragraph 9.18A
Exchange differences on a loan forming part of the net investment in a foreign operation, in the group accounts	Paragraph 30.13	No
Effective portion of a cash flow hedge	Paragraph 12.23(b)	Yes, when the hedged cash flows affect profit or loss, under paragraph 12.23(d)
Fair value changes on investments in subsidiaries, associates or joint ventures in the parent’s separate accounts, where that policy is chosen	Paragraph 9.26(b)	Follows paragraphs 17.15E and 17.15F

Translation differences mostly arise in group accounts, when an overseas subsidiary is brought in; see consolidated and separate accounts. Some fair value gains do not go through other comprehensive income at all. Investment property, for example, is measured at fair value at each reporting date with the changes recognised in profit or loss under paragraph 16.7. Two property companies holding similar buildings can therefore report very different profits depending on whether the buildings are investment property or owner occupied property carried under the revaluation model.

Why does FRS 102 keep these items out of profit or loss?

The common thread is that these movements are remeasurements of long term balances rather than the result of the year’s trading. A property revaluation reflects the market rather than the business’s operations. Actuarial gains and losses arise from changes in assumptions such as discount rates and life expectancy over decades of future payments. Translation differences arise from restating an overseas subsidiary’s net assets at a new closing rate, not from cash changing hands. Putting them in profit or loss would make reported profit swing with factors outside the year’s performance.

Cash flow hedges are different in purpose. The gain or loss on the hedging instrument is parked in a cash flow hedge reserve so that it can be released to profit or loss in the same period as the hedged transaction, which is how the hedge offset becomes visible. Paragraph 2.94 states the general principle: amounts in other comprehensive income are reclassified to profit or loss in a later period when doing so gives more relevant information or a more faithful representation, and each section of the standard says whether reclassification may, shall or shall not happen.

How does a revaluation work through the two statements?

Illustration only. A company owns an office it uses itself, carried at £200,000. It adopts the revaluation model and the office is valued at £260,000. Ignoring tax and depreciation for simplicity:

1. Year 1: the increase of £60,000 is recognised in other comprehensive income and accumulated in the revaluation reserve, under paragraph 17.15E. Profit is unaffected.
2. Year 2: the office falls in value to £180,000, a decrease of £80,000. Paragraph 17.15F says the decrease goes to other comprehensive income to the extent of the earlier surplus for that asset, so £60,000 reduces the revaluation reserve to nil. The remaining £20,000 is charged to profit or loss.
3. Year 3: if the value recovers by £30,000, paragraph 17.15E says the first £20,000 is credited to profit or loss, because it reverses a decrease previously charged there, and the other £10,000 goes to other comprehensive income.

The surplus and deficit are tracked asset by asset. A gain on one building cannot absorb a loss on another.

How is other comprehensive income presented?

Paragraph 5.2 gives a choice between a single statement of comprehensive income, with profit or loss as a subtotal, and two statements: an income statement (the profit and loss account) followed by a separate statement of comprehensive income that starts with profit or loss. Switching between the two approaches is a change in accounting policy under paragraph 5.3.

Paragraph 5.5A requires line items for each component of other comprehensive income classified by nature, the share of other comprehensive income of associates and jointly controlled entities, and total comprehensive income. Each component can be shown net of tax, or gross with a single line for the related tax. Paragraph 29.22 requires the tax on an item to be presented in the same place as the item, so deferred tax on a revaluation surplus goes to other comprehensive income too, and paragraph 29.27(a) requires disclosure of the aggregate current and deferred tax on items recognised in other comprehensive income or equity. A company with no items of other comprehensive income in any period presented can present only an income statement, under paragraph 3.19.

The movements then flow into the statement of changes in equity, which reconciles each reserve. A company with other comprehensive income cannot use the combined statement of income and retained earnings.

Do small companies have to report other comprehensive income?

Section 1A does not require a statement of comprehensive income, but paragraph 1A.9(a) says that a small entity recognising gains or losses in other comprehensive income may need to present one to give a true and fair view. The accounting does not change: a small company that revalues its premises still credits the surplus to a revaluation reserve rather than to profit.

Company law adds its own requirements. Paragraph 35 of Schedule 1 to the Small Companies Regulations (SI 2008/409), mirrored in SI 2008/410 for larger companies, requires revaluation gains and losses to go to a separate revaluation reserve shown under capital and reserves, and requires the tax treatment of amounts credited or debited to the reserve to be disclosed. Appendix C to Section 1A repeats this for small companies at paragraphs 1AC.17 and 1AC.18, including a table of movements on the revaluation reserve. For whether a small company should revalue at all, see FRS 102 explained.

Can gains in other comprehensive income be paid out as dividends?

Generally not while they remain unrealised. Section 830 of the Companies Act 2006 limits distributions to accumulated realised profits less accumulated realised losses. A revaluation surplus is an unrealised gain, and paragraph 35(3) of Schedule 1 to the same regulations only allows an amount to be transferred from the revaluation reserve to the profit and loss account if it was previously charged to that account or represents realised profit. When the property is sold, the surplus becomes realised and can be transferred to retained earnings. Directors who treat the total of reserves as available for dividends risk an unlawful distribution; see how to pay dividends legally.

What mistakes come up with other comprehensive income?

• Putting investment property gains in the revaluation reserve. Paragraph 16.7 sends them to profit or loss. They are still unrealised for distribution purposes, so many companies transfer them to a separate non distributable reserve within equity.
• Netting revaluations across assets. Paragraphs 17.15E and 17.15F apply asset by asset.
• Forgetting the deferred tax. Under paragraph 29.15, deferred tax on a revalued asset that is not depreciated is measured using the tax rates and allowances that apply to its sale, and paragraph 29.22 puts it in other comprehensive income with the surplus.
• Recycling pension remeasurements. Paragraph 28.25A prohibits reclassifying them to profit or loss later.
• Using the combined statement of income and retained earnings. Any item of other comprehensive income rules it out.
• Reporting revaluation gains as part of profit to lenders or buyers. Total comprehensive income is not the same as profit, and banking covenants usually refer to profit.

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Related Accountapedia entries

• Revaluing fixed assets and the revaluation reserve
• Retained earnings and other reserves
• Hedge accounting under FRS 102
• The statement of income and retained earnings
• Translating a foreign subsidiary in group accounts
• Accounting for defined benefit pension schemes
• Functional currency and presentation currency
• One statement or two: presenting comprehensive income

Sources

• Financial Reporting Council: FRS 102 September 2024 tmKYWO6
• legislation.gov.uk: SI 2008/409, schedule 1
• legislation.gov.uk: SI 2008/410, schedule 1
• legislation.gov.uk: Act 2006 c. 46, section 830

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.