CHAPTER 6 Statement of profit or loss and statement of changes in equity 219would be unaware of the entity’s profitability. This would impede their decision making. For example, if
a declining profit is not identified by management, they are unable to take corrective action to improve
profitability. Further, owners would not be able to gauge the capacity of the entity to make distributions
in the form of drawings or dividends, or to assess the return on their investment if profit or loss was not
measured periodically.
It is common practice for an entity to prepare a statement of profit or loss for a 12-month period to
the end of its reporting period, often 30 June. Large companies are subject to statutory reporting require-
ments and are required to prepare a statement of profit or loss for a 12-month period in addition to
producing and lodging a semi-annual statement. However, a statement of profit or loss can be produced
for management for any period of time (e.g. monthly or quarterly). More frequent profit determination
and reporting provides timely information for managers, enabling them to assess performance against
budgets and react to undesirable profit trends.
The reality check ‘Qantas in profit turnaround through low oil price’ discusses the profit announce-
ment of Qantas for the year ended June 2015.
REALITY CHECKQantas in profit turnaround through low oil price
Qantas has turned around the financial woes of recent years with a full-year after-tax profit of $557 million
announced. The result is a huge lift from last year’s loss of $2.8 billion and the strongest profit recorded
by the company since the global financial crisis. The company’s transformation program has contrib-
uted to the upsurge in profit. This program involved the loss of 5000 jobs, substantial cost savings
(particularly through lower oil prices) and repaying more than $1 billion in debt.
The profit result announced is most likely going to be larger than that of Virgin, Singapore, and Air
New Zealand and Etihad combined. Qantas is still in the process of completing the transformation, with
rationalisation in areas where technology is changing business processes, such as call centres, still to occur.
In light of the strong result, Qantas delivered a $505 million capital return to shareholders. Investors
responded positively, with Qantas shares rising half a per cent to $3.78.
Source: Hall, E 2015, Qantas in profit turnaround through low oil price, The World Today, 20 August, http://www.abc.net.au/
worldtoday/content/2015/s4296880.htm.VALUE TO BUSINESS• The statement of profit or loss is one of the financial statements prepared at the end of each reporting
period. It reflects the profit or loss of the entity for a specified time period. Periodic determination of an
entity’s profit or loss is necessary as users need to assess the profitability of an entity throughout its life.
Users rely on periodic profit or loss figures to evaluate past decisions and revise future predictions.
• Profit or loss is determined as income less expenses. The statement of profit or loss is therefore a
summary of the income and expense transactions occurring during the reporting period.
• Income comprises both revenue and gains, with revenue being income arising in the ordinary course
of activities.6.2 Accounting concepts for financial reporting
LEARNING OBJECTIVE 6.2 Explain the reporting period concept and the difference between accrual
accounting and cash accounting.
When discussing the statement of profit or loss, it is important to appreciate what is meant by the term
‘reporting period’, and to understand the distinction between cash accounting and accrual accounting.