Chapter 4: Statement of profit or loss

An entity shall include all items of income and expense in  a  reporting period in the statement of profit or loss unless an IFRS Accounting Standard requires or permits otherwise.

Categories in the statement of profit or loss

An entity shall classify income and expenses included in the statement of profit or loss in one of five categories 

• the operating category ;
• the investing category;
• the financing category 
• the income taxes category and
• the discontinued operations category  

set out requirements for classifying income and expenses in the operating, investing, financing, income taxes and discontinued operations categories. In addition, set out requirements on how foreign exchange differences, the gain or loss on the net monetary position, and gains and losses on derivatives and designated hedging instruments are classified in the categories.

Entities with specified main business activities

To classify income and expenses in the operating, investing and financing categories, an entity shall assess whether it has a specified main business activity—that is a main business activity of :

• investing in particular types of assets, referred to hereafter as investing in assets or
• providing financing to customers.

 An entity with a specified main business activity classifies in the operating category some income and expenses that would have been classified in the investing or financing category if the activity were not a main business activity.

If an entity:

• invests in assets as a main business activity, it shall disclose that fact.
• provides financing to customers as a main business activity, it shall disclose that fact.
• identifies a different outcome from its assessment of whether it invests in assets or provides financing to customers as a main business activity  it shall disclose:
• the fact the outcome of the assessment has changed and the date of the change.
• the amount and classification of items of income and expense before and after the date of the change in the outcome of the assessment in the current period and the amount and classification in the prior period for the items for which the classification has changed because of the changed outcome of the assessment, unless it is impracticable to do so. If an entity does not disclose the information because it is impracticable to do so, the entity shall disclose that fact.
   

The operating category

An entity shall classify in the operating category all income and expenses included in the statement of profit or loss that are not classified in:

• the investing category;
• the financing category;
• the income taxes category; or
• the discontinued operations category.

The investing category

Except as required by for an entity that has a specified main business activity, an entity shall classify in the investing category income and expenses specified in paragraph 54 from:

• investments in associates, joint ventures and unconsolidated subsidiaries 
• cash and cash equivalents; and
• other assets if they generate a return individually and largely independently of the entity’s other resources 

The income and expenses from the assets identified that an entity shall classify in the investing category comprise the amounts included in the statement of profit or loss for 

• the income generated by the assets;
• the income and expenses that arise from the initial and subsequent measurement of the assets, including on derecognition of the assets; and
• the incremental expenses directly attributable to the acquisition and disposal of the assets—for example, transaction costs and costs to sell the assets. 

Entities with specified main business activities

For the assets specified in (that is, investments in associates, joint ventures and unconsolidated subsidiaries) that an entity invests in as a main business activity, the entity shall classify the income and expenses specified in:

• in the investing category if the assets are accounted for applying the equity method or
• in the operating category if the assets are not accounted for applying the equity method.

For the assets specified in (that is, cash and cash equivalents), an entity shall classify the income and expenses specified in paragraph 54 in the investing category unless:

• it invests as a main business activity in financial assets within the scope of —in which case it shall classify the income and expenses in the operating category.
• it does not meet the requirements in (a) but provides financing to customers as a main business activity—in which case it shall classify:

1. A) the income and expenses from cash and cash equivalents that relate to providing financing to customers, for example cash and cash equivalents held for related regulatory requirements—in the operating category. 
2. B) the income and expenses from cash and cash equivalents that do not relate to providing financing to customers—by applying an accounting policy choice to classify the income and expenses specified in paragraph 54 in the operating category or the investing category. The choice of accounting policy shall be consistent with that made by the entity for the purpose of the related accounting policy for income and expenses  from liabilities in .

If an entity applying cannot distinguish between the cash and cash equivalents described in paragraphs and it shall apply the accounting policy choice in paragraph to classify income and expenses from all cash and cash equivalents in the operating category.

For the assets specified in (that is, other assets if they generate a return individually and largely independently of the entity’s other resources) that an entity invests in as a main business activity the entity shall classify the income and expenses specified in in the operating category.

The financing category

To determine what income and expenses to classify in the financing category, an entity shall distinguish between:

• liabilities that arise from transactions that involve only the raising of finance); and
• liabilities other than those described in (a)—that is, liabilities that arise from transactions that do not involve only the  raising  of finance.

For the liabilities specified in (that is, liabilities that arise from transactions that involve only the raising of finance), except as set out in, an entity shall classify in the financing category the amounts included in the statement of profit or loss for:

• income and expenses that arise from the initial and subsequent measurement of the liabilities, including on derecognition of the liabilities; and
• the incremental expenses directly attributable to the issue and extinguishment of the liabilities—for example, transaction costs. 

For the liabilities specified in (that is, liabilities that arise from transactions that do not involve only the raising of finance), except as set out in, an entity shall classify in the financing category:

• interest income and expenses, but only if the entity identifies such income and expenses for the purpose of  applying  other requirements in IFRS Accounting Standards; and
• income and expenses arising from changes in  interest  rates,  but only if the entity identifies such income and expenses  for  the purpose of applying other requirements in IFRS Accounting Standards.

set out how an entity shall apply the requirements in to hybrid contracts that contain a host that is a liability.

The requirements in do not apply to gains and losses on derivatives and designated hedging instruments. An entity shall apply to classify such gains and losses.

An entity shall exclude from the financing category and classify in the operating category:

• income and expenses from issued investment  contracts  with participation features recognised applying IFRS 9 Financial Instruments and
• insurance finance income and expenses included in the statement of profit or loss applying IFRS 17 Insurance Contracts.

Entities with specified main business activities

If an entity provides financing to customers as a main business activity, it shall classify income and expenses:

• from the liabilities specified in (that is, liabilities that arise from transactions that involve only the raising of finance):

1. if the liabilities relate to providing financing to customers—in the operating category.
2. if the liabilities do not relate to providing financing to customers—by applying an accounting policy choice to classify the income and expenses specified in paragraph 60 in the operating category or the financing category. The choice of accounting policy shall be consistent with that made  by  the entity for the purpose of the related  accounting  policy  for income and expenses from cash and cash equivalents  in.

from the liabilities specified in  (that is, liabilities that arise from transactions that do not involve only the raising of finance):

1. if the income and expenses are specified in —in the financing category; or
2. if the income and expenses are not specified in — in the operating category.

If an entity applying  cannot distinguish between the liabilities described in paragraphs, it shall apply the accounting policy choice in to classify income and expenses from all such liabilities in the operating category.|

The income taxes category

An entity shall classify in the income taxes category tax expense or tax income that is included in the statement of profit or loss applying IAS 12 Income Taxes, and any related foreign exchange differences.

The discontinued operations category

An entity shall classify in the discontinued operations category income and expenses from discontinued operations as required by IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

Totals and subtotals to be presented in the statement of profit or loss

An entity shall present totals and subtotals in the statement of profit or loss for:

• operating profit or loss;
• profit or loss before financing and income taxes,; and
• profit or loss.

Operating profit or loss comprises all income and expenses classified in the operating category.

Profit or loss before financing and income taxes comprises:

• operating profit or loss; and
• all income and expenses classified in the investing category.

Profit or loss is the total of income less expenses included in the statement of profit or loss. Accordingly, it comprises all income and expenses classified in all categories in the statement of profit or loss.

An entity shall not apply if it applies the accounting policy set out in of classifying in the operating category income and expenses from liabilities that do not relate to the provision of financing to customers. However, such an entity shall apply  to determine whether to present an additional subtotal after operating profit and before the financing category. For example, the entity would present a subtotal for operating profit or loss and income and expenses from investments accounted for using the equity method if the entity determines doing so is necessary to provide a useful structured summary of its income and expenses.

If an entity described in presents an additional subtotal comprising operating profit or loss and all income and expenses classified in the investing category, it shall not label the subtotal in a way that implies the subtotal excludes financing amounts, such as ‘profit before financing’. the entity shall label the subtotal in a way that faithfully represents the amounts included in the subtotal.

Items to be presented in the statement of profit or loss or disclosed in the notes

An entity shall present in the statement of profit or loss line items for (see paragraph B77):

• amounts required by this Standard, namely:
• revenue, presenting separately the line items described in (b) (i)and (c)(i);
• operating expenses, presenting separately line items as required by ;
• share of the profit or loss of associates and joint ventures accounted for using the equity method;
• income tax expense or income; and
• a single amount for the total of discontinued operations ;
• amounts required by IFRS 9, namely:
• interest revenue calculated using the effective interest method;
• impairment losses (including reversals of impairment losses or impairment gains) determined in accordance with Section of IFRS 9;

• • gains and losses arising from the derecognition of financial assets measured at amortised cost;
  • any gain or loss arising from the difference between the fair value of a financial asset and its previous amortised cost at the date of reclassification  from  amortised  cost measurement to measurement at fair value through profit or loss; and
  • any cumulative gain or loss previously recognised in other comprehensive income that is reclassified to profit or loss at the date of reclassification of a financial asset from measurement at fair value through other comprehensive income to measurement at fair value through profit or loss; and
• amounts required by IFRS 17, namely:
• insurance revenue;
• insurance service expenses from contracts issued within the scope of IFRS 17;
• income or expenses from reinsurance contracts held;
• insurance finance income or expenses from contracts issued within the scope of IFRS 17; and
• finance income or expenses from reinsurance contracts held.

An entity shall present in the statement of profit or loss (outside all the categories described in paragraph 47) an allocation of profit or loss for the reporting period attributable to:

• non-controlling interests; and
• owners of the parent.

set out requirements on how an entity uses its judgement to determine whether to present additional line items in the statement of profit or loss or disclose items in the notes.

Presentation and disclosure of expenses classified in the operating category

In the operating category of the statement of profit or loss, an entity shall classify and present expenses in line items in a way that provides the most useful structured summary of its expenses, using one or both of these characteristics 

the nature of expenses; or

• the function of the expenses within the entity.

Any individual line item shall comprise operating expenses aggregated on the basis of only one of these characteristics, but the same characteristic does not have to be used as the aggregation basis for all line items.

In classifying expenses by nature (‘nature expenses’), an entity provides information about operating expenses related to the nature of the economic resources consumed to accomplish the entity’s activities without reference to the activities in relation to which those economic resources were consumed. Such information includes information about raw material expense, employee benefit expense, depreciation and amortisation.

In classifying expenses by function within the entity, an entity allocates and aggregates operating expenses according to the activity to which the consumed resource relates. For example, cost of sales is a function line item that combines expenses relating to an entity’s production or other revenue- generating activities such as: raw material expense, employee benefit expense, depreciation and amortisation. Therefore, when classifying expenses by function, an entity might:

• allocate to several function line items (such as  cost  of  sales  and research and development) expenses relating to economic resources of the same nature (such as employee benefit expense); and
• include in a single function line item an allocation of expenses relating to economic resources of several natures (such as raw material expense, employee benefit expense, depreciation and amortisation).

If an entity presents one or more line items comprising expenses classified by function in the operating category of the statement of profit or loss, it shall:

• present a separate line item for its cost of sales, if the entity classifies operating expenses in functions that include a cost of sales function. That line item shall include the total of inventory expense described in  of IAS 2 Inventories.
• disclose a qualitative description of the nature of expenses included in each function line item.

An entity that presents one or more line items comprising  expenses classified by function in the operating category of the statement of profit or loss shall also disclose in a single note:

• the total for each of:
• depreciation,  comprising  the  amounts  required  to  be disclosed by  of IAS 16 Property, Plant and Equipment,  of IAS 40 Investment Property and  of IFRS 16 Leases;
• amortisation, comprising the amount  required  to  be disclosed by paragraph 118(e)(vi) of IAS 38 Intangible Assets;
• employee benefits, comprising the amount for employee benefits recognised by an entity applying IAS 19 Employee Benefits and the amount for services received from employees recognised by an entity applying IFRS 2 Share-based Payment;
• impairment losses and reversals of impairment losses, comprising the amounts required to be disclosed by  of IAS 36 Impairment of Assets; and
• write-downs and reversals of write-downs of inventories, comprising the amounts required to be disclosed by of IAS 2; and

for each total listed in (a)(i)–(v):

• the amount related to each line item in  the  operating category ; and
• a list of any line items outside the operating category that also include amounts relating to the total.

 requires an entity to disaggregate items to provide material information. However, an entity that applies  is exempt from disclosing:

• in relation to function line items presented in the operating category of the statement of profit or loss—disaggregated information about the amounts of nature expenses included in each line item, beyond the amounts specified in; and
• in relation to nature expenses specifically required by an IFRS Accounting Standard to be disclosed in the notes—disaggregated information about the amounts of the expenses  included  in  each function line item  presented  in  the  operating  category  of  the statement of profit  or  loss,  beyond  the  amounts  specified  in.

The exemption in relates to disaggregation of operating expenses. However, it does not exempt an entity from applying specific disclosure requirements relating to those expenses in IFRS Accounting Standards.