Accounting Business Reporting for Decision Making

CHAPTER 6 Statement of profit or loss and statement of changes in equity 231

Consolidated

Note

2015

$’000

2014

$’000

Attributable to:

Owners of the Company

Non-controlling interests

136 511

—

128 359

88

136 511 128 447

Earnings per share

Basic (cents per share)

Diluted (cents per share)

23

23

137.91

136.46

128.39

126.89

FIGURE 6.2 JB Hi-Fi Ltd statements of profit or loss

Source: JB Hi-Fi Ltd 2015, preliminary final report, p. 56.

6.7 Applying recognition criteria to income

and expenses

LEARNING OBJECTIVE 6.7 Apply the recognition criteria to income and expenses.

The recognition process was discussed in the previous chapter. Recapping, the term recognition refers to

recording items in the financial statements with a monetary value assigned to them. Therefore, ‘income recog-

nition’ or ‘expense recognition’ means that the income or expense is recorded and appears in the statement

of profit or loss. Central to the recognition principle is that items can be measured in monetary terms. This is

referred to as the monetary concept. As money is the language used to quantify items recognised in the financial

statements, if items cannot be assigned a monetary value, then they cannot appear in the financial statements.

It is recognition that links the elements in the balance sheet (assets, liabilities and equity) and statement

of profit or loss (income and expenses). Given the definitions of income and expenses, the recognition of

one of these elements requires the recognition of an equal amount of another element. For example, recog-

nising income simultaneously requires recognising an increase in asset or decrease in liability. Similarly,

recognising an expense simultaneously requires recognising a decrease in assets or increase in liabilities.

For example, recognising tennis fee income for Advantage Tennis Coaching (ATC) requires recognising an

increase in an asset (e.g. cash at bank if the fees are paid in cash or accounts receivable if the fees are out-

standing). Recognising an expense for ATC, such as paying court hire, requires simultaneously recognising

a decrease in an asset (e.g. cash). Recognising a mobile phone expense that is due but has not been paid

requires simultaneously recognising an increase in a liability (accrued expense or payables).

As discussed in the previous chapter, there are no definitive rules to assist the decision of whether an

item should be recognised. The recognition decision requires judgement. The overarching considerations

when deciding to recognise an income or an expense (and any related asset or liability) are whether the

recognition provides financial statement users with relevant information about the asset or the liability

and about any income, expenses or changes in equity, whether it is a faithful representation of the asset

or the liability and of any income, expenses or changes in equity, and whether the information results in

benefits exceeding the cost of providing that information.

The factors to consider when making a recognition decision, framed in terms of whether an asset or

liability is recognised, are as follows.

• Uncertainty. If it is uncertain whether an asset exists, or is separable from goodwill, or whether a lia-

bility exists. For example, customer relationships are not contractual and therefore uncertainty exists

as to whether these are assets or whether they are separable from the business as a whole.

• Probability. If an asset or a liability exists, but there is only a low probability that an inflow or outflow

of economic benefits will result. For example, an entity is being sued for a claimed act of wrongdoing

but the probability of having to pay damages is assessed as low.