Comprehensive Income: Gross of dividends?
I was confused by the solution to 2019 Fall Q23 a. ii., where equity was calculated as:
- Equity = Prior Year Equity + Comprehensive Income – Dividends
However, my understanding based on the wiki was that CI was already net of dividends given the following:
- CI = NI + OCI
- If dividends were paid, they must be subtracted from NI to arrive at the correct value for Equity.
If we still need to subtract dividends from the CI, wouldn't it make more sense to say instead:
- If dividends were paid, they must be subtracted from CI to arrive at the correct value for Equity.
Comments
No CI is not net of dividends.
It's more like dividends must be subtracted from equity ~ Dividends are not an expense so they would not be reported on the income statement. @graham thoughts?
I looked at this and I'm not quite sure how to say it differently. The idea is that if you use this formula to calculate equity:
you may not get the right answer unless you also subtract things like dividend payments. I guess you could instead write the formula like this:
where A would represent an adjustment for certain capital transactions like dividend payments. The source text does not explain any of this however. I think all you have to remember here is to subtract dividend payments if they are given in the statement of the problem.