STATEMENT OF PROFIT

OR LOSS AND OTHER

COMPREHENSIVE INCOME

&

STATEMENT
OF CHANGES IN EQUITY
 LEARNING OUTCOMES
• LO1: Describe the definitions of terms in statements of profit or
loss and other comprehensive income, and changes in equity
• LO2: Comprehend the concepts of income
• LO3: Understand the recognition and measurement of income
and expenses (including gains and losses)
• LO4: Describe the general structure of a statement of profit or
loss and other comprehensive income
• LO5: Discuss detailed presentation in the profit or loss
• LO6: Classify other comprehensive income items
• LO7: Describe the components of statement of changes in
equity 2
DEFINITIONS OF TERMS
DEFINITIONS OF TERMS

Expenses Decreases in assets, or increases in liabilities, that

result in decreases in equity, other than those relating to
distributions to holders of equity claims.
The term expenses is broad enough to include losses as well as
normal categories of expenses.

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DEFINITIONS OF TERMS

Income Increases in assets, or decreases in liabilities, that result

in increases in equity, other than those relating to contributions
from holders of equity claims.
The IASB’s Conceptual Framework clarifies that this definition of
income encompasses both revenue and gains.

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DEFINITIONS OF TERMS

Other comprehensive income Items of income and expense (including reclassification

adjustments) that are not recognised in profit or loss as required or permitted by other
IFRS, including:

(1) changes in revaluation surplus (IAS 16 and 38);

(2) actuarial gains and losses on defined benefit plans (IAS 19);
(3) Translation gains and losses (IAS 21);
(4) gains and losses on remeasuring of equity instrument financial assets (IFRS 9); and
(5) the effective portion of gains and losses on hedging instruments in a cash flow hedge
(IFRS 9).

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DEFINITIONS OF TERMS

Profit or loss The total of income less expenses, excluding the

components of other comprehensive income.

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DEFINITIONS OF TERMS

Reclassification adjustments Amounts reclassified to profit or

loss in the current period that were recognised in other
comprehensive income in the current or preceding periods.

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DEFINITIONS OF TERMS

Total comprehensive income The change in equity (net assets) of an

entity during a period from transactions and other events and
circumstances from non-owner sources.
It includes all changes in net assets during a period, except those
resulting from investments by owners and distributions to owners.
It comprises all components of “profit or loss” and “other
comprehensive income” presented in the statement of
comprehensive income.

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DEFINITIONS OF TERMS

Component of an entity In the context of discontinued

operations, IFRS 5 currently defines a component of an entity as
operations and cash flows that can be distinguished,
operationally and for financial reporting purposes, from the rest
of the entity—a cash-generating unit, or group of cash-
generating units.

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DEFINITIONS OF TERMS

Discontinued operations IFRS 5 defines a “discontinued operation”

as a component of an enterprise that has been disposed of, or is
classified as held-for-sale, and:

1. Represents a separate major line of business or geographical area

of operations;
2. Is part of a single coordinated disposal plan;
3. Is a subsidiary acquired exclusively with a view to resale.

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DEFINITIONS OF TERMS

Net assets total assets minus total liabilities (which is thus

equivalent to owners’ equity)

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DEFINITIONS OF TERMS

Operating segment A component of an entity: (1) that engages

in business activities from which it may earn revenues and incur
expenses (including revenues and expenses relating to
transactions with other components of the same entity); (2)
whose operating results are regularly reviewed by the entity’s
chief operating decision-maker to make decisions about
resources to be allocated to the segment and assess its
performance; and (3) for which discrete financial information is
available.

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DEFINITIONS OF TERMS

Realisation The process of converting non-cash resources and

rights into money, or more precisely the sale of an asset for cash
or claims to cash.

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DEFINITIONS OF TERMS

Recognition The process of capturing for inclusion in the statement

of financial position or the statement(s) of financial performance an
item that meets the definition of one of the elements of financial
statements—an asset, a liability, equity, income or expenses.
Recognition involves depicting the item in one of those statements—
either alone or in aggregation with other items—in words and by a
monetary amount and including that amount in one or more totals in
that statement.

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CONCEPTS OF INCOME
INCOME

Income is increases in assets, or decreases in liabilities, that

result in increases in equity, other than those relating to
contributions from holders of equity claims.
The definition of income encompasses both revenue and gains,
and revenue arises in the course of ordinary activities of an
enterprise and is referred to by different names, such as sales,
fees, interest, dividends, royalties, and rent. (more in IFSR 15)

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EXPENSES

Expenses are decreases in assets, or incurrences in liabilities,

that result in decreases in equity, other than those relating to
distributions to holders of equity claims.
Expenses are expired costs or items that were assets but are no
longer assets because they have no future value.

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EXPENSES

Costs such as materials and direct labour consumed in the

manufacturing process are relatively easy to identify with the
related revenue elements. (Associating cause and effect)

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EXPENSES

Some costs are more closely associated with specific accounting

periods. In the absence of a cause and effect relationship, the
asset’s cost should be allocated to the benefiting accounting
periods systematically and rationally. This form of expense
recognition involves assumptions about the expected length of
benefit and the relationship between benefit and cost of each
period.

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EXPENSES

All other costs are normally expensed in the period in which they are
incurred. This would include those costs for which no clear-cut future
benefits can be identified, costs that were recorded as assets in prior
periods but for which no remaining future benefits can be identified,
and those other elements of administrative or general expense for
which no rational allocation scheme can be devised.
The general approach is first to attempt to match costs with the
related revenues. Next, a method of systematic and rational allocation
should be attempted. If neither of these measurement principles is
beneficial, the cost should be immediately expensed.

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GAINS AND LOSSES

IFRS includes no definition of gains and losses that enables them

to be separated from income and expenses.
Arise from the normal business risks faced by an entity and that it
is the nature or function of a transaction or other event, rather
than its frequency, which should determine its presentation
within the statement of comprehensive income.

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GAINS AND LOSSES

Characteristics of gains and losses include the following:

1. They result from peripheral transactions and circumstances
that may be beyond an entity’s control.
2. They may be classified according to sources or as operating
and non-operating.

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STATEMENT OF PROFIT OR
LOSS AND OTHER
COMPREHENSIVE INCOME
STRUCTURE AND CONTENT

Presents all components of “profit or loss” and “other

comprehensive income” in a single statement, with net income
being an intermediate caption.
IAS 1 alternatively permits the use of a two-statement format,
with a separate statement of profit or loss and a separate
statement of comprehensive income.

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STRUCTURE AND CONTENT

The statement of profit or loss and other comprehensive income

must in addition to the information given in the profit and loss
and other comprehensive income sections disclose the
following totals:
1. Profit or loss;
2. Total other comprehensive income;
3. Comprehensive income for the year (total of 1. and 2.).

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STRUCTURE AND CONTENT

IAS 1 stipulates that, in addition to items required by other IFRS, the profit and loss
section of the statement of profit or loss and other comprehensive income must
include line items that present the following amounts for the period (if they are
pertinent to the entity’s operations for the period in question):
1. Revenue;
2. Finance costs;
3. Share of the profit or loss of associates and joint ventures accounted for by the
equity method;
4. Tax expense;
5. A single amount for the total of discontinued operations.

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STRUCTURE AND CONTENT

IAS 1 stipulates that, in addition to items required by other IFRS, the profit and loss
section of the statement of profit or loss and other comprehensive income must
include line items that present the following amounts for the period (if they are
pertinent to the entity’s operations for the period in question):
1. Revenue;
2. Finance costs;
3. Share of the profit or loss of associates and joint ventures accounted for by the
equity method;
4. Tax expense;
5. A single amount for the total of discontinued operations.

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STRUCTURE AND CONTENT

In addition, an entity should disclose the following items on the face of the
statement of profit or loss and other comprehensive income as allocations:
1. Profit or loss for the period attributable to:
a. Non-controlling interest; and
b. Owners of the parent.
2. Total comprehensive income for the period attributable to:
a. Non-controlling interest; and
b. Owners of the parent.

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PRESENTATION IN THE PROFIT
OR LOSS
STATEMENT TITLE

The legal name of the entity must be used to identify the

financial statements and the correct title used to distinguish the
statement from other information presented in the annual
report.

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REPORTING PERIOD

The period covered by the statement of profit or loss must be

clearly identified, such as
“Year ended December 31, 2017” or “Six months ended
September 30, 2017.”

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COMPARATIVE INFORMATION

As a minimum, comparative figures regarding the previous

reporting period should be included.
The requirements apply for both the profit or loss section and
the other comprehensive income section.

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CLASSIFICATION OF EXPENSES

An example of the income statement (profit or loss) classification

by the “nature of expense” method is shown below:

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CLASSIFICATION OF EXPENSES

An example of the income statement (profit or loss) classification

by the “function of expense” method is as follows:

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CLASSIFICATION OF EXPENSES

Companies typically show their regular trading operations first and

then present any items to which they wish to direct users’ attention.
Suggested sequence is as follows:
1. Sales or other operating revenues are charges to customers for
the goods and/or services provided to them during the period. This
section of the statement of income should include information about
discounts, allowances, and returns to determine net sales or net
revenues.

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CLASSIFICATION OF EXPENSES

2. Cost of goods sold is the cost of the inventory items sold during the period.
For merchandising entities: net purchases (purchases less discounts, returns, and allowances
plus freight-in) are added to the beginning inventory to obtain the cost of goods available for
sale. From the cost of goods available-for-sale amount, the ending inventory is deducted to
compute the cost of goods sold.
For manufacturing entities: Cost of goods manufactured would be added to the beginning
inventory to arrive at cost of goods available for sale. The ending finished goods inventory is
then deducted from the cost of goods available for sale to determine the cost of goods sold.
The cost of goods manufactured is computed by adding to raw materials on hand at the
beginning of the period the raw materials purchased during the period and all other costs of
production, such as labour and direct overheads, thereby yielding the cost of goods placed in
production during the period. When adjusted for changes in work in process during the period
and raw materials on hand at the end of the period, this result in the cost of goods produced.

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CLASSIFICATION OF EXPENSES

3. Operating expenses are primary recurring costs associated with central operations,
other than the cost of goods sold, which are incurred to generate sales. Operating
expenses are normally classified into the following two categories:
a. Distribution costs (or selling expenses);
b. General and administrative expenses.
Distribution costs are those expenses related directly to the entity’s efforts to generate
sales (e.g., sales salaries, commissions, advertising, delivery expenses, depreciation of
store furniture and equipment, and store supplies). General and administrative expenses
are expenses related to the general administration of the company’s operations (e.g.,
officers and office salaries, office supplies, depreciation of office furniture and fixtures,
telephone, postage, accounting, and legal services, and business licenses and fees).

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CLASSIFICATION OF EXPENSES

4. Other revenues and expenses are incidental revenues and

expenses not related to the central operations of the company
(e.g., rental income from letting parts of premises not needed
for company operations).

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CLASSIFICATION OF EXPENSES

5. Separate disclosure items are items that are of such size, nature,
or incidence that their disclosure becomes important to explain the
performance of the enterprise for the period. Examples of items that,
if material, would require such disclosure are as follows:
a. Write-downs and subsequent reversals of such write-downs;
b. Costs of restructuring the activities of an enterprise and any
subsequent reversals of such provisions;
c. Costs of litigation settlements;
d. Other reversals of provisions.
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CLASSIFICATION OF EXPENSES

6. Income tax expense. The total of taxes payable and deferred

taxation adjustments for the period covered by the income
statement.
7. Discontinued operations. IFRS 5

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CLASSIFICATION OF EXPENSES

Aggregating Items should not serve to conceal significant

information, as would the netting of revenues against expenses, or
the combining of other elements, which are of interest to readers
individually.
The categories “other” or “miscellaneous expense” should contain, at
most, an immaterial total amount of aggregated, individually
insignificant elements. Once this total approach, for example, 10% of
total expenses (or whatever the relevant materiality threshold is),
some other aggregations, together with appropriate explanatory
titles, should be selected.

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CLASSIFICATION OF EXPENSES

Offsetting Items of Income and Expense

Assets and liabilities or income and expenses may not be offset against each other, unless required
or permitted by an IFRS.
The standard gives the following examples of transactions that are incidental to the main revenue-
generating activities of an enterprise and whose results when presented by offsetting or reporting on
a net basis, such as netting any gains with related expenses, reflect the substance of the transaction:
1. Gains or losses on the disposal of non-current assets, including investments and operating assets,
are reported by deducting from the proceeds on disposal the carrying amounts of the asset and
related selling expenses;
2. Expenditure related to a provision that is reimbursed under a contractual arrangement with a third
party may be netted against the related reimbursement.

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OTHER COMPREHENSIVE INCOME
OTHER COMPREHENSIVE INCOME

The other comprehensive income and an entity’s share of other

comprehensive income of any associate must be classified
between those that:
1. Will not be reclassified subsequently to profit or loss; and
2. Will be reclassified subsequently to profit or loss.

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OTHER COMPREHENSIVE INCOME

The amount of income tax relating to each component of OCI,

including reclassification adjustments, should be disclosed
either on the face of the statement of comprehensive income or
in the notes.
Components of OCI can be presented in one of two ways:
1. Net of related tax effects; or
2. Before related tax effects with one amount shown for the
aggregate amount of income tax relating to those components.
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OTHER COMPREHENSIVE INCOME

Reclassification adjustments arise, for example, on the following

components:
• On disposal of a foreign operation (IAS 21);
• On derecognition or transfer of the financial assets (IFRS
9); and
• When a hedged forecast transaction affects profit or loss.

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OTHER COMPREHENSIVE INCOME

Reclassification adjustments do not arise on the following

components, which are recognized in OCI, but are not
reclassified to profit or loss in subsequent periods:
• On changes in revaluation surplus (IAS 16; IAS 38);
• On changes in actuarial gains or losses on defined
benefit plans (IAS 19).

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STATEMENT OF CHANGES IN
EQUITY
STATEMENT OF CHANGES IN EQUITY

IAS 1 requires an entity to present a statement of changes in equity,

including the following components on the face of the statement:
1. Total comprehensive income for the period, segregating amounts
attributable to owners and non-controlling interest;
2. The effects of retrospective application or retrospective restatement in
accordance with IAS 8, separately for each component of equity;
3. Contributions from and distributions to owners; and
4. A reconciliation between the carrying amount at the beginning and the
end of the period, separately disclosing each change, for each component
of equity.

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STATEMENT OF CHANGES IN EQUITY

The following should be disclosed, either in the statement of financial position or the
statement of changes in equity or in the notes:
1. For each class of share capital:
• Number of shares authorised;
• Number of shares issued and fully paid, and issued but not fully paid;
• Par value per share, or that the shares have no par value;
• Recognition of the number of shares outstanding at the beginning and the end
of the periods;
• Any rights, preferences, and restrictions attached;
• Shares in the entity held by the entity or its subsidiaries; and
• Shares reserved for issue under options and contracts for the sale of shares,
including terms and amounts.
2. A description of the nature and purpose of each reserve within equity. 51
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