Income statement

Expenses recognised in the income statement should be analysed either by nature (raw materials, transport costs, staffing costs, depreciation, employee benefit etc.) or by function (cost of sales, selling, administrative, etc.). (IAS 1.99) If an entity categorises by function, then additional information on the nature of expenses, at least, – depreciation, amortisation and employee benefits expense – must be disclosed. (IAS 1.104) The major exclusive of costs of goods sold, are classified as operating expenses. These represent the resources expended, except for inventory purchases, in generating the revenue for the period. Expenses often are divided into two broad sub classifications selling expenses and administrative expenses.^[6]

Non-operating section

• Other revenues or gains - revenues and gains from other than primary business activities (e.g., rent, income from patents, goodwill). It also includes unusual gains that are either unusual or infrequent, but not both (e.g., gain from sale of securities or gain from disposal of fixed assets)
• Other expenses or losses - expenses or losses not related to primary business operations, (e.g., foreign exchange loss).
• Finance costs - costs of borrowing from various creditors (e.g., interest expenses, bank charges).
• Income tax expense - sum of the amount of tax payable to tax authorities in the current reporting period (current tax liabilities/ tax payable) and the amount of deferred tax liabilities (or assets).

Irregular items

They are reported separately because this way users can better predict future cash flows - irregular items most likely will not recur. These are reported net of taxes.

• Discontinued operations
  is the most common type of irregular items. Shifting business location(s), stopping production temporarily, or changes due to technological improvement do not qualify as discontinued operations. Discontinued operations must be shown separately.

Cumulative effect of changes in accounting policies (principles) is the difference between the book value of the affected assets (or liabilities) under the old policy (principle) and what the book value would have been if the new principle had been applied in the prior periods. For example, valuation of inventories using

No items may be presented in the income statement as extraordinary items under IFRS regulations or (as of ASU No. 2015-01[7]) under US GAAP. Extraordinary items are both unusual (abnormal) and infrequent, for example, unexpected natural disaster, expropriation, prohibitions under new regulations. [Note: natural disaster might not qualify depending on location (e.g., frost damage would not qualify in Canada but would in the tropics).]

Additional items may be needed to fairly present the entity's results of operations. (IAS 1.85)

Disclosures

Certain items must be disclosed separately in the notes (or the

Because of its importance, earnings per share (EPS) are required to be disclosed on the face of the income statement. A company which reports any of the irregular items must also report EPS for these items either in the statement or in the notes.

${\displaystyle {\text{Earnings per share}}={\frac {{\text{Net income}}-{\text{Preferred stock dividends}}}{\text{Weighted average of common stock shares outstanding}}}}$

There are two forms of EPS reported:

• Basic: in this case “weighted average of shares outstanding” includes only actual stocks outstanding.
• Diluted: in this case “weighted average of shares outstanding” is calculated as if all stock options, warrants, convertible bonds, and other securities that could be transformed into shares are transformed. This increases the number of shares and so EPS decreases. Diluted EPS is considered to be a more reliable way to measure EPS.

Sample income statement

The following income statement is a very brief example prepared in accordance with

Fitness Equipment Limited
                                  INCOME STATEMENTS
                                    (in millions)

  Year Ended March 31,                         2019          2020           2021
 ----------------------------------------------------------------------------------
  Revenue                                  £14,580.2      £11,900.4      £8,290.3
  Cost of sales                             (6,740.2)      (5,650.1)     (4,524.2)
                                         -------------   ------------  ------------
  Gross profit                               7,840.0        6,250.3       3,766.1  
                                         -------------   ------------  ------------

  SGA expenses                              (3,624.6)      (3,296.3)     (3,034.0)
                                         -------------   ------------  ------------
  Operating profit                          4,215.4       2,954.0        732.1  
                                         -------------   ------------  ------------

  Gains from disposal of fixed assets           46.3            -             -
  Interest expense                            (119.7)        (124.1)       (142.8)
                                         -------------   ------------  ------------
  Profit before tax                          4,142.0        2,829.9         589.3
                                         -------------   ------------  ------------

  Income tax expense                        (1,656.8)      (1,132.0)       (235.7)
                                         -------------   ------------  ------------
  Profit (or loss) for the year           £  2,485.2     £  1,697.9     £   353.6  

DEXTERITY INC. AND SUBSIDIARIES
                             CONSOLIDATED STATEMENTS OF OPERATIONS
                                        (In millions)

  Year Ended December 31,                                     2019         2020         2021
 ----------------------------------------------------------------------------------------------
  Revenue                                                  36,525.9   29,827.6   21,186.8
  
Cost of sales
                                            (18,545.8)   (15,858.8)   (11,745.5)
                                                         -----------  -----------  ------------
  
Gross profit
                                              17,980.1     13,968.8      9,441.3  
                                                         -----------  -----------  ------------

  Operating expenses:
    Selling, general and administrative expenses           (4,142.1)    (3,732.3)     (3,498.6)
    Depreciation                                             (602.4)      (584.5)       (562.3)
    Amortisation                                             (209.9)      (141.9)       (111.8)
    Impairment loss                                       (17,997.1)          —            —
                                                         -----------  -----------  ------------
  Total operating expenses                                (22,951.5)    (4,458.7)     (4,172.7)
                                                         -----------  -----------  ------------
  Operating profit (or loss)                              (-4,971.4)    9,510.1      5,268.6   
                                                         -----------  -----------  ------------

  Interest income                                              25.3         11.7         12.0
  Interest expense                                           (718.9)      (742.9)      (799.1)
                                                         -----------  -----------  ------------
  Profit (or loss) from continuing operations
   before tax, share of profit (or loss) from
   associates and non-controlling interest                (5,665.0)    8,778.9     4,481.5   
                                                         -----------  -----------  ------------

  Income tax expense                                       (1,678.6)    (3,510.5)    (1,789.9)
  Profit (or loss) from associates, net of tax                (20.8)         0.1        (37.3)
  Profit (or loss) from 
non-controlling interest
,
   net of tax                                                  (5.1)        (4.7)        (3.3)
                                                         -----------  -----------  ------------
  Profit (or loss) from continuing operations             (7,348.7)    5,263.8     2,651.0  
                                                         -----------  -----------  ------------

  Profit (or loss) from 
discontinued operations
,
   net of tax                                              (1,090.3)      (802.4)       164.6
                                                         -----------  -----------  ------------
  Profit (or loss) for the year                           (8,439)    4,461.4     2,486.4

Bottom line

“Bottom line” is the net income that is calculated after subtracting the expenses from revenue. Since this forms the last line of the income statement, it is informally called “bottom line.” It is important to investors as it represents the profit for the year attributable to the shareholders.

After revision to IAS 1 in 2003, the Standard is now using profit or loss for the year rather than net profit or loss or net income as the descriptive term for the bottom line of the income statement.

Requirements of IFRS

On 6 September 2007, the International Accounting Standards Board issued a revised IAS 1: Presentation of Financial Statements, which is effective for annual periods beginning on or after 1 January 2009.

A business entity adopting IFRS must include:

• a statement of comprehensive income or
• two separate statements comprising:

1. an income statement displaying components of profit or loss and
2. a statement of comprehensive income that begins with profit or loss (bottom line of the income statement) and displays the items of
   other comprehensive income
   for the reporting period. (IAS1.81)

All non-owner changes in equity (i.e., comprehensive income) shall be presented either in the statement of comprehensive income or in a separate income statement and a statement of comprehensive income. Components of comprehensive income may not be presented in the statement of changes in equity.