"Other Income" Component
in MSA.Ratios
Hi Graham,
The wikipage defines Net Income as:
NI.preTax = ( NEP - net.CAE - TotAcq - GenExps ) + net.InvInc
with Net.InvInc = InvInc + (Realized Gains/Losses) - (Inv.Expenses)
Therefore strictly based on this formula, I understand that NI is composed only of UW Inc and NetInvInc.
But problem 24 of Spring 2015 (and your basic accounting practice problems derived from it) and the solution to problem 21 of Fall 2012 also consider an "Other Income/Revenue" component in the NI, distinct from UW Inc and NetInvInc.
So could you please clarify this "Other Income" and why should it be considered in NI? For ex, how is it different than "Other Comprehensive Income", which isn't considered in NI?
Thanks.
Comments
Hello @ibsy,
I see what you mean. In 2017.Spring Q13ab, other income wasn't shown in the formula for NI.preTax because other income (also called other revenue) wasn't given in the problem. My solution in the MSA.Ratios wiki article pretty much just followed the examiner's report. Strictly speaking, "other income" should be included in net income. The general (complete) formula for Net Income was given in the previous wiki article, CCIR.ARinstr (Annual Statement Instructions.) Here's the direct link:
I inserted a note in the wiki article to clarify this:
Here is a copy of the Income Statement (page 20.30) from the Annual Statement. It shows the components of Net Income:
Regarding how Net Income is different from Other Comprehensive Income:
I understand better, thanks for these details!
How is OCI different from AOCI?
OCI: Other comprehensive income is an accounting item that includes unrealized revenues, expenses, gains, and losses.
AOCI: Accumulated other comprehensive income is displayed on the "Liabilities and Equity" side of the balance sheet as shown below. It alerts users to the potential for realized gains or losses on the income statement at some unspecified future time.
So is it correct to say that change in AOCI = OCI for a specific accounting period?
That seems logical but I can't say with 100% certainty. It isn't discussed in the syllabus readings so you shouldn't have to know any details for the exam. You just have to know where it appears on the balance sheet (equity section) and what it's normally grouped with for calculating equity and/or capital available.
ok, and one more question here:
net income include uw income + inv income + other income
comprehensive inc = net income + OCI
can you confirm that 'other income' and OCI and two distinct items? as in, there is no overlapping between them correct?
Yes, CI = NI + OCI. You can see this from page 20.42 of the sample quarterly statement. Also, "Other Income" is part of Net Income, which you can see from page 20.30 in the sample quarterly statement. (So "other income" and OCI are distinct terms.)
Is income from subsidiaries (part of the numerator in ROR formula) different or same as other income?
Or is it part of other income? I see other income is in 20.22 OIE section. but income from subsidiaries is not on the 20.22
It is part of OIE. Line 415
thanks
Hello,
The link to the CCIR.ARinstr doesnt work for me. But I have a questions for Net Income, based on the formula from the MSA.Ratios Wiki, it seems like
Net Income Pre Tax = (NEP - net.CAE - TotAcq - GenExps) + net.InvInc
Based on the comments here, we should not be including OCI or AOCI in the Net Income formula, but the Net Income formula can be expanded to be this
Net Income Pre Tax = (NEP - net.CAE - TotAcq - GenExps) + net.InvInc + Other Income
Is that correct?
Can you give me the link that doesn't work. Apologies, I will fix it. Regarding your other question::
Yes, you've got it right. The formula for Net Income Pre Tax, as you've outlined it, is accurate. It includes the following components:
When you include "Other Income", you're expanding the formula to encompass additional income sources not captured in the original components. This is a good approach for a more comprehensive view of pre-tax income.
Remember, Other Comprehensive Income (OCI) and Accumulated Other Comprehensive Income (AOCI) are generally excluded from Net Income calculations.
To elaborate a little more:
First Version (Without Other Income): This formula calculates Net Income Pre-Tax by considering the Net Earned Premium (NEP), subtracting Net Change in Adjusted Equity (net.CAE), Total Acquisitions (TotAcq), General Expenses (GenExps), and then adding Net Investment Income (net.InvInc). It focuses primarily on the core operational elements of income and expenses.
Second Version (With Other Income): This expanded formula includes all the elements of the first version but adds "Other Income." This "Other Income" can encompass various non-operational income sources such as gains from the sale of assets, one-time earnings, or any income not regularly generated by the main activities of the business.
The inclusion of "Other Income" in the second version can significantly impact the final figure of Net Income Pre-Tax. It can provide a more comprehensive view of a company's financial performance, but it also introduces elements that might not be consistent or recurring, potentially affecting the comparability of the income across different periods.