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Nature
Uses
Forms
Approaches
Component
INCOME STATEMENT AND RELATED INFORMATION
INCOME STATEMENT
SPECIAL REPORTING INCOME STATEMENT
Principles of
Income Statement
Presentation
Concept of Income
Statement
Preparation
Interim Reporting
Segment Reporting

Discontinued
Operation
Extraordinary
Items
Accounting
Changes
The amended PAS 1, paragraph 10A provides
that an entity has two options in presenting
comprehensive income.

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

Related information
DEFINITION AND 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,
expenses, gains, losses and net income or loss
recognized during the period from entity's
profit-directed activities.

Ice breaker question:
What do you think is the 2 forms of
Income Statement?
a. Functional and Natural
b. Comprehensive Income and Profit and loss
c. Expense and Revenue form
d. None of the Above
TWO FORMS OF PRESENTATION
1. 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)

TWO FORMS OF PRESENTATION
2. Natural presentation:
-nature of expense method
-expenses are aggregated according to their nature
- expenses which are of the same nature are grouped
as one item

T
W
O
F
O
R
M
S
Ice breaker question:
Which of the form is required by the
standard to be use?
a. Functional
b. Natural
c. Expense and Revenue Recognition form
d. None of the Above


Under PAS 1 paragraph, there is NO prescribed type
of format since each presentation has merit for
different type of entities.
USES
The income statement helps the users of
financial statement predict fu ture cash flows in
a number of ways.
1. Evaluate the past performance of the
company
2. Provide a basis for predicting future
performance.
3. Help assess the risk or uncertainty of achieving
future cash flows


Ice breaker question:
What do you think is the 2 type of
approaches of Income Measurement?
a. Rational and Logical Approach
b. Revenue and Expense Approach
c. Capital and Transaction Approach
d. None of the Above
APPROACHES TO INCOME MEASUREMENT
1. Capital maintenance approach
This is also called net asset approach meaning
that the net income occurs only after the
capital is used from the beginning if the
period is maintained.
This has 2 variations:
a. Financial Capital concept:
b. Physical Capital Concept

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 assets
or equity of the entity
Net income = Net asset at the end of
the year > net asset at the beginning
of the year
Physical Concept
This concept requires that productive
assets must be valued at current cost
It is the quantitative measure of the
physical productive capacity to
produce goods & services
Net income = Physical productive
capital end of the year > Physical
productive capital beg of the year
APPROACHES TO INCOME MEASUREMENT
2.Transaction approach
The conventional or traditional preparation of
income statement in conformity with PFRS
In computing net income, it requires the
determination of how much net income was earned
It is the direct result of the application of the
principle of matching cost with revenue
NI= income - expense

COMPONENTS OF INCOME 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
COMPONENTS OF INCOME STATEMENT
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]



Principles of Income Statement
Presentation
a. Going concern
The Conceptual Framework notes that financial
statements are normally prepared assuming the entity is
a going concern and will continue in operation for the
foreseeable future. [Conceptual Framework, paragraph
4.1] IAS 1 requires management to make an assessment
of an entity's ability to continue as a going concern. If
management has significant concerns about the entity's
ability to continue as a going concern, the uncertainties
must be disclosed. If management concludes that the
entity is not a going concern, the financial statements
should not be prepared on a going concern basis, in
which case IAS 1 requires a series of disclosures. [IAS
1.25]
b. Accrual basis of accounting
IAS 1 requires that an entity prepare its financial
statements, except for cash flow information, using
the accrual basis of accounting. [IAS 1.27]
Principles of Income Statement
Presentation
c. Consistency of presentation
The presentation and classification of items in
the financial statements shall be retained from one
period to the next unless a change is justified either
by a change in circumstances or a requirement of a
new IFRS. [IAS 1.45]
Principles of Income Statement
Presentation
d. Materiality and aggregation
Each material class of similar items must be
presented separately in the financial statements.
Dissimilar items may be aggregated only if the are
individually immaterial. [IAS 1.29]
e. Offsetting
Assets and liabilities, and income and expenses,
may not be offset unless required or permitted by an
IFRS. [IAS 1.32]

Principles of Income Statement
Presentation
Principles of Income Statement
Presentation
f. Comparative information
IAS 1 requires that comparative information to
be disclosed in respect of the previous period for all
amounts reported in the financial statements, both
on the face of the financial statements and in the
notes, unless another Standard requires otherwise.
Comparative information is provided for narrative and
descriptive where it is relevant to understanding the
financial statements of the current period. [IAS 1.38]

Concepts of Income Statement Preparation
Profit or loss is defined as "the total of income less
expenses, excluding the components of other
comprehensive income".
All items of income and expense recognized in a
period must be included in profit or loss unless a
Standard or an Interpretation requires otherwise.
[IAS 1.88] Some IFRSs require or permit that some
components to be excluded from profit or loss and
instead to be included in other comprehensive
income.
In addition, IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors
requires the correction of errors and the
effect of changes in accounting policies to be
recognised outside profit or loss for the
current period. [IAS 1.89]
Concepts of Income Statement Preparation
DISCONTINUED OPERATIONS
Discontinuing operation- A relatively large
component of a business enterprise such as a
business or geographical segment under IAS 14
Segment Reporting that the enterprise, pursuant to
a single plan, either is disposing of substantially in its
entirety or is terminating through abandonment or
piecemeal sale. [IAS 35.2]
note: A restructuring, transaction or event that does
not meet the definition of a discontinuing operation
should not be called a discontinuing operation. [IAS
35.43]
DISCONTINUED OPERATIONS
The Generally Accepted Accounting Principles
framework requires special presentation treatment
of the results of operations of a component of an
entity that is either being held for sale or which has
already been disposed of.
The designated results of operations must be
reported as a discontinued operation within
the financial statements if both of the following
conditions are present:

a. Resulting elimination. The disposal transaction will
result in the operations and cash flows of the
component being eliminated from company
operations.
b. Continuing involvement. There will be no significant
continuing involvement by the company in the
operations of the component, once the disposal
transaction has been completed. Continuing
involvement implies the ability to influence the
operating or financial policies of the disposed
component.

DISCONTINUED OPERATIONS
If the preceding two conditions are met and a
component is held for sale, the business must
report the results of operations of the component
for current and prior periods in a separate
discontinued operations section of the income
statement.
Under the same conditions but where the
component has been sold, the business must report
the results of operations of the component for
current and prior periods, as well as any gain or loss
on disposal, in a separate discontinued operations
section of the income statement.
DISCONTINUED OPERATIONS
EXTRAORDINARY ITEMS
An extraordinary item is an event or transaction
that is considered abnormal, not related to
ordinary company activities, and unlikely to recur
in the foreseeable future.
Examples:
destruction of facilities by an earthquake, or the
destruction of a vineyard by a hailstorm in a region
where hailstorm damage is rare.
Conversely, an example of an item that does not
qualify as extraordinary is weather-related crop
damage in a region where such crop damage is
relatively frequent.


EXTRAORDINARY ITEMS
Disclosure of Extraordinary Items
You should classify an extraordinary item separately in
the income statement if it meets any of the following
criteria:
It is material in relation to income before extraordinary
items
It is material to the trend of annual earnings before
extraordinary items
It is material by other criteria
Under IAS1 paragraph 87, (issued 1993) Extraordinary
Items is required to be disclosed 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.
EXTRAORDINARY ITEMS
EXTRAORDINARY ITEMS
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 realizable 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

EXTRAORDINARY ITEMS
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

Cumulative Effects of Accounting Changes
As irregular items, cumulative effects of accounting
changes pertain to accounting adjustments a
business makes to factor in financial reporting
modifications in prior performance data. These
adjustments do not call for any monetary
transaction -- meaning, the company does not pay
for any expense that results from these changes.
ACCOUNTING CHANGES
INTERIM REPORTING
What is Interim financial reporting?
Interim Reporting means that the preparation
and presentation of financial information is for
a period of less than one year.

Segment Reporting
IAS 14 Segment Reporting requires reporting of
financial information by business or geographical
area. It requires disclosures for 'primary' and
'secondary' segment reporting formats, with the
primary format based on whether the entity's risks
and returns are affected predominantly by the
products and services it produces or by the fact that
it operates in different geographical
Segment revenue: revenue, including intersegment
revenue, that is directly attributable or reasonably
allocable to a segment. Includes interest and
dividend income and related securities gains only if
the segment is a financial segment (bank, insurance
company, etc.). [IAS 14.16]
Segment Reporting
Segment expenses: expenses, including expenses
relating to intersegment transactions, that (a) result
from operating activities and (b) are directly
attributable or reasonably allocable to a segment.
Includes interest expense and related securities
losses only if the segment is a financial segment
(bank, insurance company, etc.).
Segment Reporting
Segment expenses do not include:
-interest
-losses on sales of investments or debt
extinguishments
-losses on investments accounted for by the equity
method income taxes
-general corporate administrative and head-office
expenses that relate to the entity as a whole [IAS
14.16]
Segment Reporting
QUIZ
I. Enumeration
1-3) Give the 3 uses of Income Statement
4-5) 2 forms of Income Statement
6-7) 2 Approach Measurement of Income
Statement
8-9) 2 Irregular Items
II. 10-30) MC

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