1) Income statement: Nature, forms and uses of Income Statement:

Introduction:
The amended PAS 1, paragraph 10A provides that an entity has two options in presenting comprehensive
income.

Two. Statementes
A. Income statement:
Shows the components of profit and loss. Under PAS 1 it is also called "statement of profit or loss"
B. Statement of Comprehensive Income
This statement begins with profit or loss plus or minus the other comprehensive income

What is an Income Statement and its nature?
Income Statement is a formal statement showing the financial performance of an entity given period of time
A company's financial performance is based in terms of level of income earned by the entity. It is also known
as the results of operations of the entity.

Income statement presents the income, expense , gain, losses and net income or loss recognized during the
period from entity's profit-directed acitvities.

What is income?
From the conceptual framework, income is defined as "increase in economic benefit during the accounting
period in the form of inflow or increase in asset". In other words, income is an inflow of future economic
benefit that increases equity.

Sources of income:
*sales of merchandise to customer: includes all sales to customers during the period.
(Sales - sales return/allowances/discounts = net sales)

*Rendering of services: it is the income derived from a service rendered.
(Ex: professional fee, media advertising fee)

*Use of entity resources: income derived from the usage of resources of one's entity
(Ex: rent, interest, dividend icome

* disposal of resources ither than products: An income derived from selling or disposing an entity's
resources.
(Ex: selling of an equipment, gain on sale of intangible asset)






What are the forms of Income
Statement?
Forms:
There are 2 forms of presenting income
statement:

Functional presentation:
-Traditional and common form of income
statement
- cost of sale method
-classifies expenses according to their
function as part of cost of sales,
distribution cost and administrative
activities
(Entity classifying expenses by function
shall disclose additional information on
the nature of expense)

Natural presentation:
-Nature of expense method
-expenses ate aggregated according to
their nature
- expenses which are of the same nature
are grouped as one ite

Which form of income statement is
required by the standard?
Under PAS 1 paragraph, there is NO
prescribe type of format since each
presentation has merit for different type of entities.

Uses of income statement:
The purpose of the income statement is to show managers and investors whether the company was
profitable during the period being reported.

KEY POINTS
-An income statement reflects the revenues and expenses of a company for a specific period of time.
-Business use these reports to understand the financial position of their business and where to make changes
for future years.
- Income statement information provides the basis for a variety of decisions.





2. Approaches to income statement measurement:
1. Capital maintenance approach
This is also called as net asset approach meaning that the net income occurs only after the capital is
used form the beginning if the period is maintained.
This has 2 variations:
Financial capital concept:
It is the traditional concept based on historical cost.
Financial capital is the monetary value of the net asset contributed.
Under financial capital concept, Such capital is synonymous with net assers or equity of thr entity
Under this concept: Net income = Net asset at the end of the year > net asset at the beginning of the
year

Physical concept:
It is the quantitative measure of the physical productive capacity to produce goods & services
This concept requires that productive assets must be valued at current cost
Net income = Physical productive capital end of the year > Physical productive capital beg of the
year

2.Transaction approach
The conventional or traditional reparation of income statement in comformity with PFRS
In computing net income it requires the determination how much net income was esrned
It is the direct result of the application of the principle of matching cost with revenue
NI= income - expense

3) Components of Income Statement
Profit or loss section or statement
The following minimum line items must be presented in the profit or loss section (or separate statement of
profit or loss, if presented): [IAS 1.82-82A]
-revenue
-gains and losses from the de-recognition of financial assets measured at -amortized cost
-finance costs
-Share of the profit or loss of associates and joint ventures accounted for using the equity method
-certain gains or losses associated with the reclassification of financial assets
-tax expense
-a single amount for the total of discontinued items

Expenses recognized in profit or loss should be analyzed either by nature (raw materials, staffing costs,
depreciation, etc.) or by function (cost of sales, selling, administrative, etc). [IAS 1.99] If an entity categorizes
by function, then additional information on the nature of expenses at a minimum depreciation,
amortization and employee benefits expense must be disclosed. [IAS 1.104]






SAMPLE OF INCOME STATEMENT/COMPREHENSIVE INCOME STATEMENT














































4) Principles of income statement presentation

5) Concept of Income Statement Preparation

6) Irregular Items
Discontinued operation
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Extra ordinary
Unter IAS1 paragraph 87, (issued 1993) Extraordinary Items is required to be disclose in the income
statement separately from the profit or loss from ordinary activities. These are the transactions that are
clearly distinct from ordinary ones.

In 2002, the board decided to eliminate the concept of extraordinary items. Therefore no items of income
and expense are to be presented as arising from the outside the entitys ordinary activities or called as
extraordinary items. The board decided that the nature or function of a transaction or other event rather
than its frequency, should determine its presentation within the income statement. Eliminating this category
also eliminated the need for random segregation of the effects of related external events.

Today,
Additional line items may be needed to fairly present the entity's results of operations. [IAS 1.85]
Items cannot be presented as 'extraordinary items' in the financial statements or in the notes. [IAS 1.87]
Certain items must be disclosed separately either in the statement of comprehensive income or in the notes,
if material, including: [IAS 1.98]
write-downs of inventories to net realisable value or of property, plant and equipment to
recoverable amount, as well as reversals of such write-downs
restructurings of the activities of an entity and reversals of any provisions for the costs of
restructuring
disposals of items of property, plant and equipment
disposals of investments
discontinuing operations
litigation settlements
other reversals of provisions

Accounting Changes
Under IAS8: An entity is permitted to change an accounting policy only if the change:
is required by a standard or interpretation; or
results in the financial statements providing reliable and more relevant information about the effects of
transactions, other events or conditions on the entity's financial position, financial performance, or cash
flows



7) Interim Reporting:
What is Interim financial reporting?
Intrim Reporting Means that the preparation and presentation of financial information for a period of less
than one year.

8) Segment Reporting:
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