There are two prerequisites

Other comprehensive income: It is an owner's equity account, although it also has a column on the income statement

Net profit: It is the current profit and loss Class

For example, you are the boss of a listed real estate company. You bought an office building in the 2nd Ring Road of Beijing 10 years ago. You used to use it yourself, but later you thought it would be more cost-effective to rent it out. This year it was leased to others. Since then, the self-occupied building has been converted into investment real estate measured using the fair value model.

It was valued at 10 million back then, and today, 10 years later, it has a market value of 1 billion. I thought to myself that I was very happy. It was almost the end of the year, and the financial statements were about to be released. You took the letter handed to you by the financial director. When I look at the report, I feel something is wrong. Why? The profits are a bit small. The reality is that most listed companies hope to increase their profits. The message sent to the outside world is that the company has a future. And you find that the profit is too small, it still shows 10 million, not 1 billion. The financial director explained that although 10,000 have been converted into investment real estate measured in the fair value model, the 990 million difference cannot directly affect Current profit and loss (profit and loss from changes in fair value) cannot directly affect the income statement, but can only affect "other comprehensive income" of equity first. It is not until you dispose of the investment real estate that the part included in "other comprehensive income" will be transferred to the current period. Profit and loss affects the income statement.

Actually, this is the rule of the game. Just think about it, house and land prices in China are so high. If every company uses similar methods to manipulate profits, wouldn’t it be deceiving the public? When profits are high, companies go to banks for loans. It is very convenient, so accounting standards will stipulate this.