In this topic 8 sections
- 24Start with profit, then identify OCI
- 25Present performance clearly
- 26OCI: separate recyclable and non-recyclable items
- 27Recycling: distinguish the period from the accumulated balance
- 28Original equity reconciliation: Amber Engineering
- 29Revaluation journals must balance
- 30Connect the statements and check the labels
- 31Sources and further reading
Start with profit, then identify OCI
Profit or loss includes income and expenses unless a standard requires or permits another treatment. OCI contains specified income and expense items outside profit or loss. It is not a discretionary category for gains management would rather exclude from profit.
| Movement | Profit or loss? | OCI? | Direct owner movement? |
|---|---|---|---|
| Revenue earned from customers | Normally yes | No | No |
| Depreciation expense | Normally yes, unless included in another asset's cost | No | No |
| Qualifying upward revaluation under IAS 16 | Normally no, subject to reversal rules | Normally yes | No |
| New shares issued for cash | No | No | Contribution |
| Dividend to equity holders | No | No | Distribution |
| Correction of a material prior-period error | Restate affected prior-period profit where relevant | Not an arbitrary current OCI item | Not an owner transaction; show the retrospective adjustment separately |
Total comprehensive income equals profit or loss plus OCI. The statement of changes in equity then adds owner transactions and any required retrospective adjustments. An increase in cash is not automatically profit, and an increase in equity is not automatically comprehensive income.
Present performance clearly
For a side-by-side worked comparison, download the financial-statement layouts and review checklist. It shows the same costs classified by nature and by function, then compares one-statement and two-statement presentation.
IAS 1 specifies required line items and allows additional line items or subtotals when needed to explain performance. Apply the relevant presentation requirements for material income and expenses, finance costs, tax and discontinued operations. Do not use an extraordinary-items category. A dramatic event can still be an ordinary part of the reporting framework even if it is unusual in business life.
Expenses can be analysed by nature or by function, choosing the approach that gives reliable and more relevant information. Nature groups items such as depreciation and employee benefits. Function groups costs by roles such as cost of sales, distribution and administration. A function analysis may require allocations. When using it, additional disclosures by nature are required, including depreciation/amortisation and employee-benefit expense. Do not count the same depreciation both within a function and again as a separate expense in the total.
A short performance checklist includes revenue, finance costs, tax, the share of equity-accounted results and discontinued operations where relevant. Financial-instrument and insurance requirements can add specific lines. This is a starting checklist, not an exhaustive statement template: check the applicable requirements and materiality for the entity.
In consolidated statements, profit and total comprehensive income are attributed to owners of the parent and non-controlling interests as required. The group result is not automatically all attributable to the parent's shareholders. Study the statement labels before using profit in an equity reconciliation or earnings-per-share calculation.
OCI: separate recyclable and non-recyclable items
| Typical OCI category | Later transfer to profit or loss? | Important qualification |
|---|---|---|
| IAS 16 revaluation surplus | No ordinary recycling through profit on disposal | A permitted transfer to retained earnings is within equity |
| Defined-benefit remeasurements under IAS 19 | Not reclassified to profit or loss | Follow the employee-benefit requirements |
| Equity investments designated at FVOCI | Not reclassified to profit or loss | A transfer within equity is different from recycling |
| Debt investments measured at FVOCI | Reclassification can occur on derecognition | Apply the instrument's detailed requirements |
| Translation of a foreign operation | Reclassification can occur on disposal | Distinguish current translation movements from the accumulated reserve |
| Qualifying cash-flow hedge reserve | Treatment depends on the hedged item and subsequent event | Some amounts are reclassified; some enter an asset/liability's initial amount |
Group OCI according to whether later reclassification to profit or loss is possible. Present items net of related tax, or before tax with the tax effect shown. Disclose the tax attributable to each OCI item, including reclassification adjustments, in the statement or notes. If using the before-tax presentation, allocate the aggregate tax between the recyclable and non-recyclable groups. Do not assume a before-tax OCI amount can be inserted into an after-tax equity reconciliation unchanged.
This module focuses on presentation. Later modules develop the recognition and measurement of financial instruments and other specialised transactions. The OCI label must follow the applicable standard, rather than a general preference for keeping volatile amounts outside profit.
Recycling: distinguish the period from the accumulated balance
| Current-year component | Amount |
|---|---|
| New translation gain in OCI | 5,000 |
| Reclassification out of OCI | (11,000) |
| Net current-year OCI effect | (6,000) |
| Gain reclassified into current profit | 11,000 |
| Total current comprehensive-income effect of these movements | 5,000 |
The current OCI gain and the reclassification are not necessarily equal. The reclassification also contains gains accumulated in earlier years. Closing translation reserve is zero, while the statement still faithfully shows both the current movement and the transfer of the cumulative amount. Do not count the $11,000 once in profit and again as an unreversed OCI gain.
Original equity reconciliation: Amber Engineering
| Movement ($000) | Capital | Retained earnings | Revaluation surplus | Translation reserve | Total |
|---|---|---|---|---|---|
| Opening | 250 | 88 | 32 | 0 | 370 |
| Profit | 0 | 54 | 0 | 0 | 54 |
| OCI, after tax | 0 | 0 | 18 | 6 | 24 |
| Shares issued | 40 | 0 | 0 | 0 | 40 |
| Dividends | 0 | (22) | 0 | 0 | (22) |
| Transfer within equity | 0 | 4 | (4) | 0 | 0 |
| Closing | 290 | 124 | 46 | 6 | 466 |
Total comprehensive income is $78,000: profit $54,000 plus net OCI $24,000. Total equity rises $96,000 because net owner contributions add a further $18,000. The reserve transfer changes two columns but not total equity or profit.
Disclose dividends recognised as owner distributions and the related amount per share in the equity statement or notes. Distinguish those recognised distributions from a dividend proposed or declared after the reporting date without an earlier obligation.
Revaluation journals must balance
| Entry | Debit | Credit |
|---|---|---|
| Eliminate accumulated depreciation against gross amount | Accumulated depreciation 90,000 | Building cost 90,000 |
| Increase the net carrying amount from 270,000 to 310,000 | Building 40,000 | Revaluation gain in OCI / surplus 40,000 |
After the first entry, net carrying amount remains $270,000. After the second, it is $310,000. Debiting accumulated depreciation without crediting the gross asset would not be a complete entry. Record any required deferred tax separately in the same presentation location as the underlying revaluation, as developed in Module 4.
Connect the statements and check the labels
Self-check: Amber's accountant proposes treating the $22,000 dividend as an expense and the $4,000 reserve transfer as income. What would this distort?
Answer: Profit would be reduced by a distribution to owners and increased by a transfer that creates no income. The equity statement should show the dividend as a distribution and the transfer between the relevant equity components. Neither belongs in current profit.
When a statement of changes in equity starts with an originally reported balance and then a restated opening balance, keep the retrospective correction separate from current comprehensive income. Reconcile each component, not just the total: an incorrect reserve allocation can be hidden by a correct overall equity figure.
For performance analysis, compare revenue and expense movements over consistent periods. Ask how much change comes from ongoing trading, changes in volume or prices, estimates, disposals and other unusual events. Read the notes behind OCI movements and the related tax. An unrealised gain is not automatically OCI, and a recurring expense does not disappear merely because management calls it exceptional.
Sources and further reading
Study guide: Module 2, Parts B and C, printed pages 83–94. Download the profit, OCI and equity bridge. All cases, amounts and journal workings on this page are original.
Concept sources: AASB 101, December 2021 compilation, paragraphs 81A–109; AASB 116, December 2021 compilation, paragraphs 35–41; AASB 119, December 2021 compilation, paragraphs 120–122; AASB 9, December 2021 compilation, sections 5.7 and 6.5; AASB 121, March 2020 compilation, paragraphs 48–48D.