Accounting Business Reporting for Decision Making

236 Accounting: Business Reporting for Decision Making

If an entity has discontinued part of its operations during the reporting period, the entity must seg-

regate profit or loss from continuing operations and discontinued operations. This allows users of the

financial statements to better analyse the financial performance — past, current and future. For example,

Telstra’s 2014 statement of profit or loss showed a loss from discontinued operations (net of tax) of

$204 million. The notes disclose that during financial year 2014 Telstra made significant divestments

including the completed sale of a 70 per cent stake in its Sensis directories business. In accordance with

accounting standards, the Sensis directories business is disclosed as a discontinued operation.

Entities are permitted to disclose additional line items, headings and subtotals in the statement of

profit or loss if it is relevant to users in assessing the financial performance of the entity. For example,

figure 6.2 illustrates that JB Hi-Fi Ltd has included the additional subtotal ‘gross profit’ in its statement

of profit or loss.

Material income and expenses

To enhance the usefulness of information for decision making, entities are required to separately disclose

any item of income or expense that is material or significant. The determination of whether an item is

material is based on the size and/or nature of the item, and whether its non-disclosure could influence

users’ decision making. This disclosure can occur via the notes to the accounts or in the statement of

profit or loss. It is important to identify and separately disclose material items, as this helps users to

identify permanent versus transitory earnings charges and thereby better predict future earnings. Situ-

ations that may result in material items of income and expenses are disposals of property, plant and equip-

ment, asset impairments and restructuring activities. JB Hi-Fi Ltd does not report any significant items

in its 2015 statement of profit or loss. However, in its statement of profit or loss for the financial year

ended 30 June 2011, it reported a significant expense of $33 352 000. This item related to the company’s

strategic review of its Clive Anthonys’ business. The result of the review was to restate the carrying

amount of Clive Anthonys’ assets to their recoverable amount based on the revised strategy, and record

any related liabilities. The components of the charge against profit included goodwill written off, inven-

tory write-downs, and plant and equipment write-offs.

A typical statement of profit or loss format for entities preparing general purpose financial statements

was presented in figure 6.2, which showed the 2015 statement of profit or loss for JB Hi-Fi Ltd. The

information in figure 6.2 will be used to discuss disclosures around income and expense items. This dis-

cussion is in figure 6.5.

JB Hi-Fi Ltd

Statement of profit or loss for the financial year ended 30 June 2015

Note

Consolidated

2015 ($’000) Description and disclosure requirements

Revenue 3 3 652 136 The components of income may be shown in the statement of

profit or loss or in the accompanying notes to the accounts. The

sub-classifications of income may include sale of goods, rendering

of services, rents, royalties and dividends. JB Hi-Fi Ltd reports only

one source of revenue — the sale of goods.

Cost of sales (2 853 883) Entities disclosing revenue from the sale of goods are required to

also disclose the cost of sales.

Gross profit 798 253 Gross profit is the revenue from the sale of goods less the cost of

the sales.

Other income 4 631 Other income may include gains arising from the disposal of assets.

JB Hi-Fi Ltd reports interest income and ‘other’ income in this

category.