Statement of profit or loss and other comprehensive income

Concepts of profit or loss and comprehensive income

Profit or loss is defined as "the total of income less expenses, excluding the components of other comprehensive
income".  Other comprehensive income is defined as comprising "items of income and expense (including
reclassification adjustments) that are not recognised in profit or loss as required or permitted by other IFRSs".  Total
comprehensive income is defined as "the change in equity during a period resulting from transactions and other
events, other than those changes resulting from transactions with owners in their capacity as owners". [IAS 1.7]
 
Comprehensive income  =  Profit  +  Other
for the period or loss comprehensive income
 
All items of income and expense recognised in a period must be included in profit or loss unless a Standard or an
Interpretation requires otherwise. [IAS 1.88] Some IFRSs require or permit that some components to be excluded
from profit or loss and instead to be included in other comprehensive income.

Examples of items recognised outside of profit or loss

 Changes in revaluation surplus where the revaluation method is used under IAS 16
Property, Plant and Equipment and IAS 38 Intangible Assets
 Remeasurements of a net defined benefit liability or asset recognised in
accordance with IAS 19 Employee Benefits (2011)
 Exchange differences from translating functional currencies into presentation
currency in accordance with IAS 21 The Effects of Changes in Foreign Exchange
Rates
 Gains and losses on remeasuring available-for-sale financial assets in accordance
with IAS 39 Financial Instruments: Recognition and Measurement
 The effective portion of gains and losses on hedging instruments in a cash flow
hedge under IAS 39 or IFRS 9 Financial Instruments
 Gains and losses on remeasuring an investment in equity instruments where the
entity has elected to present them in other comprehensive income in accordance
with IFRS 9
 The effects of changes in the credit risk of a financial liability designated as at fair
value through profit and loss under IFRS 9.
In addition, IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors requires the correction of
errors and the effect of changes in accounting policies to be recognised outside profit or loss for the current period.
[IAS 1.89]
 
Choice in presentation and basic requirements
An entity has a choice of presenting:
 a single statement of profit or loss and other comprehensive income, with profit or loss and other
comprehensive income presented in two sections, or
 two statements:
o a separate statement of profit or loss
o a statement of comprehensive income, immediately following the statement of profit
or loss and beginning with profit or loss [IAS 1.10A]
 
The statement(s) must present: [IAS 1.81A]
 profit or loss
 total other comprehensive income
  comprehensive income for the period
 an allocation of profit or loss and comprehensive income for the period between non-controlling
interests and owners of the parent.
 
Profit or loss section or statement
The following minimum line items must be presented in the profit or loss section (or separate statement of profit or
loss, if presented): [IAS 1.82-82A]
 revenue
 gains and losses from the derecognition of financial assets measured at amortised cost
 finance costs
 share of the profit or loss of associates and joint ventures accounted for using the equity method
 certain gains or losses associated with the reclassification of financial assets
 tax expense
 a single amount for the total of discontinued items
Expenses recognised in profit or loss should be analysed either by nature (raw materials, staffing costs, depreciation,
etc.) or by function (cost of sales, selling, administrative, etc). [IAS 1.99] If an entity categorises by function, then
additional information on the nature of expenses – at a minimum depreciation, amortisation and employee benefits
expense – must be disclosed. [IAS 1.104]
Other comprehensive income section
The other comprehensive income section is required to present line items which are classified by their nature, and
grouped between those items that will or will not be reclassified to profit and loss in subsequent periods. [IAS
1.82A]
The line items for amounts of OCI shall be grouped as:
 OCI that will be reclassified subsequently to profit or loss when specific conditions are met.
 Gain or loss from translating financial statements of foreign operation
 Unrealized gain or loss on derivative contracts designated as cash flow hedge
 Unrealized gain or loss on debt investment measured at FVOCI
 
OCI that will be reclassified subsequently to retained earnings
 Unrealized gain or loss on equity investment measured at FVOCI
 Change in revaluation surplus
 Remeasurements of a definite benefit plan
 Gain or loss attributable to credit risk of a financial liability designated at FVTPL
 
An entity's share of OCI of equity-accounted associates and joint ventures is presented in aggregate as single line
items based on whether or not it will subsequently be reclassified to profit or loss. [IAS 1.82A]
When an entity presents subtotals, those subtotals shall be comprised of line items made up of amounts recognised
and measured in accordance with IFRS; be presented and labelled in a clear and understandable manner; be
consistent from period to period; not be displayed with more prominence than the required subtotals and totals; and
reconciled with the subtotals or totals required in IFRS. [IAS 1.85A-85B]
Other requirements
Additional line items may be needed to fairly present the entity's results of operations. [IAS 1.85]
Items cannot be presented as 'extraordinary items' in the financial statements or in the notes. [IAS 1.87]
Certain items must be disclosed separately either in the statement of comprehensive income or in the notes, if
material, including: [IAS 1.98]
 write-downs of inventories to net realisable value or of property, plant and equipment to recoverable
amount, as well as reversals of such write-downs
  restructurings of the activities of an entity and reversals of any provisions for the costs of
restructuring
 disposals of items of property, plant and equipment
 disposals of investments
 discontinuing operations
 litigation settlements
 other reversals of provisions
 
Forms of income statement
1. Functional presentation
It is also known as the cost of goods sold method. Expenses are classified according to their function as part
of cost of goods sold, distribution costs, administrative expenses and other expenses.
 
Classification of expenses
1. Distribution cost or selling expense
Costs which are directly related to selling, advertising and delivery of goods
 
2. Administrative expenses
Cost of administering the business
 
3. Other expenses
Expenses which are not directly related to distribution and administrative expenses.
 
2. Natural presentation
It is also known as the nature of expense method. Expenses are aggregated according to their nature and not
allocated among the various functions within the entity.