Under International Financial Reporting Standards (IFRS), a Profit
and Loss Statement (P&L) serves as a crucial financial statement that provides valuable insights into the financial performance of an entity over a specific period. It presents a comprehensive summary of revenues, expenses, gains, and losses incurred by an organization, ultimately resulting in the determination of its net profit or loss. The key components of a P&L statement under IFRS include revenue, cost of sales, gross profit
, operating expenses, operating profit
, finance costs, other income and expenses, profit before tax, income tax
expense, and net profit or loss.
1. Revenue: Revenue represents the inflow of economic benefits arising from the ordinary activities of an entity. It includes sales of goods, rendering of services, interest
income, royalties, and dividends. Revenue is recognized when it is probable that economic benefits will flow to the entity and can be reliably measured.
2. Cost of Sales: Cost of sales, also known as cost of goods sold (COGS), represents the direct costs incurred in producing or acquiring goods sold by the entity. It includes the cost of raw materials, direct labor, and manufacturing overhead directly attributable to the production process.
3. Gross Profit: Gross profit is calculated by deducting the cost of sales from revenue. It reflects the profitability of an entity's core operations before considering operating expenses.
4. Operating Expenses: Operating expenses encompass all costs incurred in the ordinary course of business
that are not directly attributable to the production process. These expenses include selling and distribution expenses, administrative expenses, research and development costs, and depreciation
or amortization charges.
5. Operating Profit: Operating profit is derived by subtracting operating expenses from gross profit. It represents the profitability of an entity's core operations before considering finance costs and other non-operating items.
6. Finance Costs: Finance costs comprise interest expenses on borrowings, finance lease charges, and other costs associated with financing activities. These costs are recognized in the P&L statement to reflect the financial burden of an entity's debt or financing arrangements.
7. Other Income and Expenses: Other income and expenses include gains or losses arising from non-operating activities, such as the sale of non-current assets, foreign exchange
gains or losses, and impairment
losses on investments. These items are typically disclosed separately to provide a clearer understanding of an entity's financial performance.
8. Profit Before Tax: Profit before tax is calculated by subtracting finance costs and other income and expenses from operating profit. It represents the profitability of an entity's operations before considering income tax expenses.
9. Income Tax Expense: Income tax expense represents the tax payable on the taxable profit generated by an entity. It includes current tax liabilities and deferred tax charges or credits arising from temporary differences between accounting
and tax treatments.
10. Net Profit or Loss: Net profit or loss is determined by subtracting income tax expense from profit before tax. It represents the final financial outcome of an entity's operations for the period under consideration.
It is important to note that under IFRS, entities may also present additional line items or disclose specific information in the P&L statement to provide further insights into their financial performance. The presentation and disclosure
requirements of IFRS aim to enhance transparency
, comparability, and relevance of financial statements for users.