Statement of profit or loss and OCI - Other comprehensive in...

Learning Outcomes

After studying this article, you will be able to explain the structure and components of the statement of profit or loss and other comprehensive income (OCI) for ACCA Financial Reporting. You will distinguish between profit or loss and other comprehensive income, identify key items reported in OCI, and apply the accounting treatments required by IFRS for typical OCI components in published accounts.

ACCA Financial Reporting (FR) Syllabus

For ACCA Financial Reporting (FR), you are required to understand how to prepare and analyse the statement of profit or loss and other comprehensive income. In particular, you need to focus on:

• The structure and format of the statement of profit or loss and OCI as required by IAS 1
• Classification and presentation of items in profit or loss versus OCI
• Identification and treatment of revaluation gains and losses per IFRS standards
• Disclosure and calculation of unrealised gains/losses on financial instruments
• The process for calculating total comprehensive income and linking to other primary statements

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following items is most likely to be included in 'other comprehensive income' (OCI)?
   1. Revenue from sales
   2. Gain on revaluation of land and buildings
   3. Interest expense
   4. Dividend income

2. Explain the difference between 'profit for the year' and 'total comprehensive income'.

3. True or false? All items recognised in OCI will eventually be reclassified (recycled) to profit or loss.

4. Which two standards mainly govern the reporting of OCI components?

Introduction

The statement of profit or loss and other comprehensive income provides information about a company’s performance during the period. Under IAS 1, the statement is split into two distinct sections: profit or loss, and other comprehensive income (OCI). This separation is required to clearly distinguish realised earnings from other gains and losses that affect equity but are not yet realised or distributable.

Key Term: other comprehensive income (OCI)
Income and expenses (including reclassification adjustments) that are not recognised in profit or loss as required or permitted by IFRS. Typical examples include revaluation surpluses, certain gains/losses on financial assets, and actuarial gains/losses on defined benefit plans.

FORMAT AND CATEGORIES OF OTHER COMPREHENSIVE INCOME

The statement presents, in order: profit or loss for the period, items of OCI, and then total comprehensive income. OCI items are further classified into:

• Items that may be reclassified to profit or loss in the future (recycled)
• Items that will not be reclassified to profit or loss (not recycled)

Examples of OCI Components

• Gains or losses on revaluation of property, plant and equipment (IAS 16)
• Gains or losses on fair value changes of certain equity investments (IFRS 9)
• Currency translation differences on foreign operations (group accounts; not usually tested individually in single entity statements)
• Remeasurements of defined benefit pension schemes (IAS 19)

Key Term: revaluation surplus
The increase in equity resulting from the revaluation of non-current assets to fair value, recognised in OCI as required by IAS 16.

Key Term: unrealised gain/loss
Gains or losses from changes in the fair value of certain assets (such as investments), which are recognised in OCI until realised.

Items reported in OCI do not affect distributable profits for the period. Instead, they adjust equity through dedicated reserves (e.g., revaluation surplus, FVOCI reserve).

Presentation requirements

IAS 1 allows two approaches:

• A single combined statement of profit or loss and OCI
• Separate statements for profit or loss and for OCI (less common in practice)

OCI items must be clearly grouped and labeled according to whether or not they may be reclassified to profit or loss. Detailed tax effects should be shown for each component or in the notes.

Worked Example 1.1

A company has the following items for the year ended 31 December 20X7:

• Profit before tax: $380,000
• Income tax expense: $92,000
• Gain on revaluation of land (net of tax): $85,000
• Fair value increase on equity instruments designated as FVOCI (net of tax): $12,000

Required:
Present an extract from the statement of profit or loss and OCI showing these amounts.

Answer:

Exam Warning

Items in OCI do not appear in retained earnings or affect the calculation of 'profit for the year'. Only distributable profits can be paid as dividends. Be careful not to mix up reserves in calculations.

REQUIREMENTS FOR MAJOR OCI COMPONENTS

Revaluation Surplus (IAS 16)

Gains from upward revaluation of property, plant, and equipment should be recognised in OCI and accumulated in a revaluation surplus in equity, unless it reverses a previous revaluation decrease taken to profit or loss.

Financial Assets at FVOCI (IFRS 9)

Fair value gains or losses for certain equity or debt instruments designated as 'fair value through other comprehensive income' are recognised in OCI. For equity instruments, when sold, cumulative gains/losses in the FVOCI reserve are not transferred to profit or loss but may be moved within equity. For debt instruments, gains/losses are reclassified to profit or loss on disposal.

Actuarial Gains and Losses (IAS 19)

Remeasurements of defined benefit pension obligations, including actuarial gains and losses, are always recognised in OCI and are never recycled to profit or loss.

CLASSIFICATION: RECYCLED VS NON-RECYCLED OCI

Certain OCI items may be reclassified (recycled) to profit or loss if specific future events occur—for example, when a FVOCI debt investment is sold, the gain/loss is transferred to profit or loss. Others, such as revaluation surplus on PPE, are never recycled and remain within equity until the related asset is disposed.

LINKING WITH OTHER PRIMARY STATEMENTS

• The total comprehensive income for the year (profit for the year plus OCI) is presented in the statement of changes in equity, along with other movements.
• Accumulated balances from OCI items are held in separate reserves (e.g., revaluation surplus, FVOCI reserve) and are disclosed in the statement of changes in equity and the notes.

Worked Example 1.2

During the year, a company revalued equipment, resulting in a $50,000 gain, and recorded a $3,000 loss on an FVOCI equity investment. The company’s profit after tax was $119,000.

Required:
What is total comprehensive income, and how are the reserves adjusted?

Answer:
Total comprehensive income = $119,000 (profit) + $50,000 (revaluation surplus) – $3,000 (FVOCI loss) = $166,000. $50,000 is posted to the revaluation surplus in equity; the $3,000 FVOCI loss decreases the FVOCI reserve.

Revision Tip

In practice questions, total comprehensive income equals profit for the year plus all OCI items (gains and losses). Always keep OCI adjustments separate from the profit figure.

Summary

The statement of profit or loss and OCI provides a full picture of financial performance. Profit for the year shows realised earnings, while OCI captures other gains and losses required by IFRS to bypass profit or loss. Accurate classification and treatment of OCI components—such as revaluation gains, FVOCI investment changes, and actuarial movements—are essential both for exam purposes and published accounts.

Key Point Checklist

This article has covered the following key knowledge points:

• Recognise the required structure of the statement of profit or loss and OCI under IAS 1
• List which items are classified as OCI and distinguish between recycling and non-recycling items
• Account for revaluation surpluses and FVOCI financial asset gains/losses per IFRS standards
• Calculate and present total comprehensive income
• Understand the impact of OCI components on equity reserves, not retained earnings

Key Terms and Concepts

• other comprehensive income (OCI)
• revaluation surplus
• unrealised gain/loss