CHAPTER 6 Statement of profit or loss and statement of changes in equity 235• To recognise income and expenses in the statement of profit or loss, consideration is given to the
following factors that influence the relevance of the information: (1) uncertainty regarding the asset
or liability existence; (2) the probability of the inflow (outflow) of economic benefits associated with
the asset (liability); and (3) the extent of measurement uncertainty.
• Income and expenses are generated from various activities. Income comprises revenue and gains.
Sources of income include the provision of goods and services (sales), investing or lending, selling
assets, and receiving contributions such as government grants. Items of expense include the costs
of providing goods and services (cost of sales); wages and salaries; depreciation and amortisation;
and selling, administrative, investing and financing expenses.6.8 Presenting the statement of profit or loss
LEARNING OBJECTIVE 6.8 Identify presentation formats for the statement of profit or loss.
In chapter 5, the difference in appearance of the balance sheet depending on the type of entity and the
choice of the entity was explored. Nonetheless, the balance sheet has common elements such as assets,
liabilities and equity. Similarly, the appearance of the statement of profit or loss differs depending on
whether the statement is being prepared for internal or external reporting purposes, and whether the
preparing entity is required to comply with accounting standards. For example, the statement of profit or
loss presented for ATC, a non-reporting small business in illustrative example 6.1, looks quite different
from that presented for JB Hi-Fi Ltd, a listed company. While the two statements of profit or loss have
common elements such as income, expenses and profit, JB Hi-Fi Ltd’s statement of profit or loss con-
tains more aggregated data with greater detail in the notes to the accounts. We have previously discussed
the classification of income and expenses. The following sections examine other presentation and con-
tent requirements for the statement of profit or loss, with a focus on requirements for entities required to
comply with accounting standards.
Prescribed format for general purpose financial statements
As discussed in chapter 5, some entities are legally required to prepare financial statements in accord-
ance with approved accounting standards. IFRS include a standard that specifies the presentation of
financial statements. Income and expenses may be presented in a variety of ways, with the aim being to
make the presentation consistent and relevant to external users. We will now explore some of the presen-
tation issues.
The statement of profit or loss for the previous reporting period in addition to the current reporting period
is presented. Known as comparative information, it allows users to see how the entity’s financial perfor-
mance in the current period differs from that of the previous period. When comparing the figures for the cur-
rent and previous period, users should familiarise themselves with the entity’s accounting policies to ensure
that a change in accounting policy is not the reason for the change in the reported figures. The presentation
of the numbers in the statement of profit or loss in whole dollars, or thousands or millions of dollars, is at the
discretion of the entity, but the entity should clearly identify on the statement the monetary value reported. In
the situation where the entity has investments in other entities, the statement of profit or loss for the group is
presented. The concept of group (consolidated) accounts is explored in chapter 5.
The accounting standard governing the presentation of the statement of profit or loss requires the
following to be presented on the statement of profit or loss:
- revenue
- cost of sales (if revenue from sales is disclosed)
- finance costs
- share of profit or loss of associates and joint ventures if equity accounted
- tax expense
- profit or loss.