Disclosure profit or loss items

Disclosure profit or loss items

Here is an attempt to focus users of financial statements to important and less important financial transactions and events that have to be in the disclosure profit or loss items part in the Notes. Under the Better Communication in Financial Reporting-initiative, IFRS 15 Revenue from contracts with customers, Financial instruments and IAS 12 Taxes are in general considered representing an important part of profit or loss reporting. Then there are a lot of profit or loss items that need to be more-or-less grouped, each in itself may not be significant enough or so.

Some of these items just have to be disclosed but do not (always) draw immediate attention, others are important but not important enough for a single note in the financial statements.

Here is a potential example discussion of splitting profit or loss items in important (maybe even material?) profit or loss items and other profit or loss items. The content in here is presented in the following order:

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Disclosure important profit or loss items guidance

[IAS1.97, IAS1.98]

Where items of income and expense are important (in IFRS jargon ‘material‘), their nature and amount shall be Disclosure profit or loss itemsdisclosed separately either in the statement of comprehensive income, the statement of profit or loss (where applicable) or in the notes. Circumstances that would give rise to the separate disclosure of items of income and expense include:

  1. 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
  2. restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring
  3. disposals of items of property, plant and equipment
  4. disposals of investments Disclosure profit or loss items
  5. discontinued operations (refer to note 15)
  6. litigation settlements Disclosure profit or loss items
  7. other reversals of provisions, and Disclosure profit or loss items
  8. gains or losses recognised in relation to a business combination.

Material items do not need to be presented in a separate note. However, in our view it will be easier for users to assess the impact of such items on the entity’s performance if this information is presented together.

Disclosure important profit or loss items example

4 Important profit or loss items

[IAS 1.119, IAS 1.97] Disclosure profit or loss items Disclosure profit or loss items

The group has identified a number of items which are important due to the significance of their nature and/or amount. These are listed separately here to provide a better understanding of the financial performance of the group.

Amounts in CU’000

Notes

2020

2019

Gain on sale of freehold land [IAS 1.97, IAS 1.98(c)]

(a)

1,270

Restructuring costs [IAS 1.97, IAS 1.98(b)]

8(i)

-1,377

Impairment of goodwill [IAS 1.97]

8(d)

-2,410

Impairment of other assets [IAS 36.126(a)]

(b)

– Office and warehouse building [IAS 36.130(b)]

-465

– Plant and equipment

-210

Inventories

-535

Total impairment losses – other assets [IAS 1.97]

-1,210

*

Insurance recovery

(b)

300

Disclosure profit or loss items Disclosure profit or loss items

Loss on disposal of plant and equipment [IAS 1.97, IAS 1.98(c)]

(c)

-230

Litigation settlement relating to claim against the land development division [IAS 1.97, IAS 1.98(f)]

(d)

-370

Recognition of tax losses

(e)

945

Total important items from continuing operations

-3,427

345

Disclosure profit or loss items Disclosure profit or loss items

Gain on sale of discontinued operation

15

481

4(a) Sale of freehold land

Following the re-zoning of land held by The Reporting entity Consulting Inc, the entity sold a large parcel of freehold land at a significant profit and realised a gain of CU1,270,000 (included in the IT consulting – US segment).

4(b) Impairment of other assets

A fire in Springfield in March 2020 damaged a major office and warehouse building owned by a subsidiary that is part of the Neverland furniture manufacturing and wholesale segment. The fire also destroyed equipment and inventories stored in the warehouse. [IAS 36.129(a), IAS 36.130(a),(c)]

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The office and warehouse building was written down to its recoverable amount of CU1,220,000, which was determined Disclosure profit or loss itemsby reference to the building’s fair value less costs of disposal. The main valuation inputs used were a market value of CU105 per square metre (determined by an independent valuer) and costs of repair, estimated by management to be approximately CU430,000. Since the estimated costs of repair are a significant unobservable input, the fair value of the office and warehouse building is classified as a level 3 fair value. [IAS 36.130(e),(f)]

As the inventory and equipment were destroyed beyond repair, their fair value less cost of disposal was nil.

The impairment loss is included in administrative expenses in the statement of profit or loss. [IAS 36.126(a)]

An insurance recovery of CU300,000 has been received and recognised as other income. [IAS 16.74(d)]

4(c) Disposal of plant and equipment

The Reporting entity Manufacturing upgraded its plant and equipment by installing a large new production line in its Springfield factory in the previous financial year. There were several items of old equipment that had to be removed to make place for the new plant. Since the items were using superseded technology, the entity was not able to sell them at their carrying amounts but incurred a loss of CU230,000 on disposal (included in the Furniture manufacture – Neverland segment).

4(d) Litigation settlement

In January 2019, The Reporting entity Development Limited paid CU370,000 as settlement for a claim lodged against the company following the termination of the Pinetree development in Alpville (included in ‘all other segments’ in the segment note).

4(e) Recognition of tax losses

Following a significant improvement in trading conditions in the Neverland furniture manufacturing and wholesale segment in 2019, the group reviewed previously unrecognised tax losses and determined that it was now probable that taxable profits will be available against which the tax losses can be utilised. As a consequence, a deferred tax asset of CU945,000 was recognised for these losses in 2019.

Disclosure profit or loss items guidance

This note provides a breakdown of other income, other gains/losses and an analysis of expenses by nature, but it does not show all of the profit or loss amounts that must be disclosed under various accounting standards. Instead, individual profit or loss items are now disclosed together with the relevant information to which they belong. For example, gains or losses related to various financial instruments held by the group are disclosed together with the balance sheet amounts. It is argued that that this presentation is more useful for users of the financial statements.Disclosure profit or loss items

Employee benefits expenses

Although IAS 19 Employee Benefits does not require specific disclosures about employee benefits other than post-employment benefits, other standards may require disclosures, for example, where the expense resulting from such benefits is material and so would require disclosure under paragraph 97 of IAS 1 Presentation of Financial Statements. Similarly, termination benefits may result in an expense needing disclosure in order to comply with IAS 1.97. [IAS 19.25, IAS 19.158, IAS 19.171]

Finance costs

Finance costs will normally include:

  1. costs that are borrowing costs for the purposes of IAS 23 Borrowing Costs:

    1. interest expense calculated using the effective interest rate method as described in IFRS 9 Financial Instruments [IFRS 7.IG13]

    2. interest in respect of lease liabilities (refer to note 8(b)), and

    3. exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs [IAS 23.5, IAS 23.6]

  2. the unwinding of the effect of discounting provisions

  3. dividends on preference shares that are classified as debt [IAS 32.35, IAS 32.40)

  4. the amortisation of discounts and premiums on debt instruments that are liabilities [IFRS 9.B5.4.4]

  5. interest on tax payable where the interest element can be identified separately

  6. the increase in the present value of the costs to sell in relation to assets that are held for sale, where the sale is expected to occur beyond one year. [IFRS 5.17]

Interest expense on lease liabilities must also be presented as a component of finance cost in the statement of profit or loss and other comprehensive income. [IFRS 16.49]

Amounts disclosed under paragraph 3(a)(iii) above shall also be included in the net foreign exchange gain or loss disclosed under paragraph 52(a) of IAS 21 The Effects of Changes in Foreign Exchange Rates. The Reporting entity Plc discloses this amount in note 12(b). [IAS 21.52(a)] Disclosure profit or loss items

Costs which may also be classified as finance cost include other costs associated with the entity’s management of cash, cash equivalents and debt; for example, fair value changes on interest rate hedges, the ineffective portion of cash flow interest rate hedges or a loss on the extinguishment of a liability. Disclosure profit or loss items

Finance income

The classification of finance income depends on the entity’s accounting policy for such items. Where earning interest income is part of the entity’s ordinary activities rather than an incidental benefit, the interest income should be included within the main ‘revenue’ heading and separately disclosed in the statement of profit or loss, if material. In other cases, entities may take the view that finance income is most appropriately included as ‘other operating income’ or as a separate line item in arriving at operating profit (if disclosed). [IAS 1.82(a)]

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The Reporting entity Plc includes finance income that arises from treasury activity (for example, income on surplus funds invested for the short term) outside operating profit whilst including other types of finance income as operating items. Although entities have some discretion in the way in which finance income is included in the statement of comprehensive income, the presentation policy adopted should be applied consistently and disclosed if material.

In addition, entities must disclose the total interest revenue (calculated using the effective interest rate method) for financial assets that are measured at amortised cost and those that are measured at fair value through other comprehensive income. This applies regardless of the presentation chosen in the primary financial statements. This requirement is illustrated in note 5(a)(i). [IFRS 7.20(b)]

Issue not disclosed

The following requirement IS not used in HERE: Disclosure profit or loss items

(a) Where material, entities must separately disclose any fee income arising from financial assets not at fair value through profit or loss and from trust and other fiduciary activities. [IFRS 7.20(c)]

Disclosure profit or loss items example

5 Other income and expense items

This note provides a breakdown of the items included in other income, other gains/(losses), finance income and costs and an analysis of expenses by nature. Information about specific profit or loss items (such as gains and losses in relation to financial instruments) is disclosed in the related balance sheet notes.

5(a) Other income

IAS 1.112 (c)

Amounts in CU’000

Notes

2020

2019

Rental income and sub-lease rental income

8(c)

7,240

7,240

Dividends

(i)

3,300

4,300

Interest income on financial assets held as investments

(ii)

258

249

Other items (voluntary disclosure)

(iii)

550

244

11,348

12,033

(i) Dividends

Dividends are received from financial assets measured at fair value through profit or loss (FVPL) and at fair value through other comprehensive income (FVOCI). Dividends are recognised as other income in profit or loss when the right to receive payment is established. This applies even if they are paid out of pre-acquisition profits, unless the dividend clearly represents a recovery of part of the cost of an investment. In this case, the dividend is recognised in OCI if it relates to an investment measured at FVOCI. [IAS 1.117, IFRS 9.5.7.1A, IFRS 9.B5.7.1)

(ii) Interest income [IAS 1.117]

Interest income from financial assets at FVPL is included in the net fair value gains/(losses) on these assets, see note Disclosure profit or loss items5(b) below. Interest income on financial assets at amortised cost and financial assets at FVOCI calculated using the effective interest method is recognised in profit or loss as part of other income.

Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for financial assets that subsequently become credit-impaired. For credit-impaired financial assets, the effective interest rate is applied to the net carrying amount of the financial asset (after deduction of the loss allowance). [IFRS 9.5.4.1] Disclosure profit or loss items

Interest income is presented as finance income where it is earned from financial assets that are held for cash management purposes, see note 5(d) below. Any other interest income is included in other income. [IFRS 7.20(b)]

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Total interest income on financial assets that are measured at amortised cost for the year was CU1,670,000 and interest income from debt investments that are measured at FVOCI was CU200,000 (2019 – CU1,154,000 interest income from financial assets not measured at FVPL).

(iii) Government grants

Export market development grants of CU250,000 (2019 – CU244,000) are included in the ‘other items’ line item. There are no unfulfilled conditions or other contingencies attaching to these grants. The group did not benefit directly from any other forms of government assistance. [IAS 20.39(b),(c)]

Deferral and presentation of government grants [IAS 1.117]

Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate. [IAS 20.12 , IAS 20.29]

Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and they are credited to profit or loss on a straight-line basis over the expected lives of the related assets. [IAS 20.24, IAS 20.26]

5(b) Other gains/(losses)

Amounts in CU’000 Disclosure profit or loss items

Notes

2020

2019

Net gain/(loss) on disposal of property, plant and equipment (excluding property, plant and equipment sold as part of the engineering division)

8(a)

1,620

-530

Fair value adjustment to investment property

8(c)

1,350

1,397

Net fair value gains/(losses) on financial assets at fair value through profit or loss

7(d)

955

-620

Net foreign exchange gains/(losses)

12(b)

518

-259

Net fair value gains on derivatives held for trading

12(a)

11

-621

Other items (voluntary disclosure)

139

-38

4,593

-671

5(c) Breakdown of expenses by nature

Amounts in CU’000 Disclosure profit or loss items

Notes

2020

2019

Changes in inventories of finished goods and work in progress (voluntary disclosure)

8(f)

-6,681

-5,255

Raw materials and consumables used (voluntary disclosure)

8(f)

62,218

54,108

Employee benefits expenses

8(a), 8(b)

56,594

52,075

Depreciation Disclosure profit or loss items

8(d), 3(b)

10,374

9,350

Amortisation Disclosure profit or loss items

8(d)

2,166

730

Impairment of goodwill Disclosure profit or loss items

4(b)

2,410

Impairment of assets damaged by fire

1,210

Other expenses (voluntary disclosure)

27,839

16,270

Total cost of sales, distribution cost and administrative expenses (voluntary disclosure)

156,130

127,278

5(d) Finance income and costs

Amounts in CU’000 Disclosure profit or loss items

Notes

2020

2019

Finance income Disclosure profit or loss items

Interest income from financial assets held for cash management purposes

(a)(ii)

1,261

905

Net gain on settlement of debt [IFRS 9.3.3.3, IFRS 7.20(a)(v)]

7(g)

355

Finance income

1,616

905

Disclosure profit or loss items Disclosure profit or loss items

Finance costs Disclosure profit or loss items

Interest and finance charges paid/payable for lease liabilities and financial liabilities not at fair value through profit or loss [IFRS 7.20(b)]

8(b)

-6,956 -6,367

Provisions: unwinding of discount [IAS 37.60]

8(i)

-93 -78

Fair value gain on interest rate swaps designated as cash flow hedges – transfer from OCI [IFRS 7.24C(b)(iv)]

12(b)

155 195

Net exchange losses on foreign currency borrowings [IAS 21.52(a)]

12(b)

-1,122 -810
-8,016 -7,060
Disclosure profit or loss items Disclosure profit or loss items

Amount of capitalised borrowing costs [IAS 23.26(a)]

(i)

525 325

Finance costs expensed

-7,491 -6,735
Disclosure profit or loss items Disclosure profit or loss items Disclosure profit or loss items

Net finance costs

-5,875 -5,830
(i) Capitalised borrowing costs

The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to the entity’s general borrowings during the year, in this case 7.02% (2019 – 7.45%). [IAS 23.26(b)]

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