The statement of financial position shows what an entity has at a date. The other statements show what happened during the year: what it earned, what changed in its equity and what the notes add. International Accounting Standard (IAS) 1 Presentation of Financial Statements sets the minimum contents of the statement of profit or loss and other comprehensive income, the statement of changes in equity and the notes.
This topic covers the choice between one statement and two, the line items, analysis of expenses by nature or by function, the items of other comprehensive income and their reclassification, the layout of the statement of changes in equity and the structure of the notes. The next topic covers the changes introduced by the new presentation standard, International Financial Reporting Standard (IFRS) 18.
The topic is examined directly. In November Diet, 2023, Question 7(b)(ii) asked for five items to be accounted for in the statement of changes in equity (5 marks), and the compulsory accounts question in each diet asks for the statement of profit or loss and other comprehensive income (10 marks in November 2021 and May 2023) and the statement of changes in equity (4 to 5 marks). Read components, general features and the statement of financial position first.
In 30 seconds
Performance is shown in one statement of profit or loss and other comprehensive income, or in two: a statement of profit or loss, then one starting from profit and showing other comprehensive income (OCI). Expenses are analysed by nature or by function (in which case cost of sales is shown and the nature of some expenses is disclosed).
OCI items are grouped into those that will not be reclassified to profit or loss (revaluation surplus, remeasurements of defined benefit plans, fair value changes of equity designated at fair value through OCI (FVOCI)) and those that may be (exchange differences on translation, FVOCI debt, cash flow hedges).
The statement of changes in equity shows total comprehensive income, effects of changes in policy and errors, transactions with owners and a reconciliation of each component. The notes give policies and supporting detail.
The statement of profit or loss
Total comprehensive income for the period is profit or loss plus other comprehensive income. An entity may present all items in one statement, or present the components of profit or loss in a statement of profit or loss and then a second statement beginning with profit or loss and showing the components of OCI.
The minimum line items are revenue; finance costs; the share of the profit or loss of associates and joint ventures accounted for by the equity method; tax expense; a single amount for the total of discontinued operations; profit or loss; each component of OCI; the share of OCI of associates; and total comprehensive income.
Profit or loss and total comprehensive income are each attributed to non-controlling interests and to the owners of the parent. No item is presented as an extraordinary item, and material items of income or expense are disclosed separately.
Analysis of expenses
- By nature: expenses are aggregated according to their nature (depreciation, purchases of materials, transport costs, employee benefits, advertising), and are not reallocated among functions. It is simple to apply.
- By function: expenses are classified by function as part of cost of sales, distribution, administration and so on. At a minimum, cost of sales is disclosed separately. It is more relevant to users but needs judgement. An entity classifying by function discloses additional information on the nature of expenses, including depreciation, amortisation and employee benefits expense.
For example, revenue is ₦500,000, cost of sales ₦320,000, distribution costs ₦30,000, administrative expenses ₦45,000, other income ₦10,000 and finance costs ₦15,000. Gross profit is ₦180,000 and profit before tax is ₦180,000 − ₦30,000 − ₦45,000 + ₦10,000 − ₦15,000 = ₦100,000. With tax of ₦30,000, profit for the year is ₦70,000.
Other comprehensive income
Other comprehensive income comprises items of income and expense (including reclassification adjustments) that are not recognised in profit or loss as required or permitted by Standards. The components are grouped into:
- items that will not be reclassified subsequently to profit or loss: changes in the revaluation surplus of property, plant and equipment and intangible assets, remeasurements of defined benefit plans, and fair value changes of equity investments designated at fair value through OCI; and
- items that may be reclassified: exchange differences on translating a foreign operation, gains and losses on debt instruments at fair value through OCI, and the effective part of gains and losses on cash flow hedges.
A reclassification adjustment is an amount reclassified from OCI to profit or loss in the current period that was recognised in OCI in the current or a previous period, for example the translation reserve on the disposal of a foreign operation. The entity shows the tax effect of each item, either on the face (net of tax) or in the notes.
For example, a revaluation gain of ₦20,000 with deferred tax of ₦6,000 gives OCI of ₦14,000, and total comprehensive income is ₦70,000 + ₦14,000 = ₦84,000.
The statement of changes in equity
The statement of changes in equity includes:
- total comprehensive income for the period, with the amounts attributable to owners of the parent and to non-controlling interests;
- for each component of equity, the effects of retrospective application or restatement recognised under IAS 8;
- for each component, a reconciliation of the opening and closing carrying amounts, separately disclosing changes from profit or loss, OCI and transactions with owners in their capacity as owners (contributions such as share issues, distributions such as dividends, and changes in ownership interests in subsidiaries that do not result in a loss of control).
The amount of dividends recognised as distributions to owners and the related amount per share are shown in this statement or in the notes. Typical components of equity are share capital, share premium, revaluation surplus, other reserves and retained earnings.
For example, at the start of the year share capital is ₦80,000, share premium ₦10,000, revaluation surplus ₦5,000 and retained earnings ₦40,000 (total ₦135,000). Profit is ₦70,000, OCI ₦14,000 (revaluation), dividends ₦25,000 and a share issue brings in capital of ₦10,000 and premium of ₦5,000.
| ₦ thousand | Share capital | Share premium | Revaluation surplus | Retained earnings | Total |
|---|---|---|---|---|---|
| Balance at start | 80 | 10 | 5 | 40 | 135 |
| Profit for the year | 70 | 70 | |||
| Other comprehensive income | 14 | 14 | |||
| Dividends | (25) | (25) | |||
| Issue of shares | 10 | 5 | 15 | ||
| Balance at end | 90 | 15 | 19 | 85 | 209 |
The notes
The notes present information about the basis of preparation and the specific accounting policies used, disclose information required by Standards that is not on the face of the statements. Provide other information that is relevant to understanding any of them.
They are presented in a systematic manner, normally in this order:
- a statement of compliance with IFRS Accounting Standards
- a summary of significant accounting policies including the measurement bases used
- supporting information for items on the face of the statements, in the order in which each statement and each line item is presented
- other disclosures, including contingent liabilities, unrecognised commitments and non-financial disclosures
The entity also discloses the judgements that management has made in applying policies that have the most significant effect on the amounts, the major sources of estimation uncertainty, information about its capital and its objectives, and dividends proposed but not recognised.
The ideas in more depth
Why OCI exists
Some gains and losses are real changes in value but are not part of the period’s trading result, such as a revaluation of land or a translation difference on a subsidiary abroad. Putting them in OCI keeps profit a measure of performance, while total comprehensive income still shows the whole change in equity apart from transactions with owners.
Why dividends do not appear in profit
A dividend is a distribution of profit to the owners, not a cost of earning it. It is shown in the statement of changes in equity, and not in profit or loss.
Sources and references
- IAS 1 Presentation of Financial Statements: statement of profit or loss and other comprehensive income, statement of changes in equity and notes.
These points are stated as at 5 November 2026.
Worked examples
Example 1: profit by function. Revenue ₦500,000; cost of sales ₦320,000; distribution ₦30,000; administration ₦45,000; other income ₦10,000; finance costs ₦15,000; tax ₦30,000; revaluation gain ₦20,000 with deferred tax ₦6,000. Required: profit and total comprehensive income.
- Gross profit. ₦180,000.
- Profit before tax.
₦180,000 − ₦30,000 − ₦45,000 + ₦10,000 − ₦15,000 = ₦100,000. - Profit for the year.
₦100,000 − ₦30,000 = ₦70,000. - OCI.
₦20,000 − ₦6,000 = ₦14,000, which will not be reclassified. - Total comprehensive income. ₦84,000.
Example 2: the statement of changes in equity. As in the table above. Required: closing retained earnings and total equity.
- Retained earnings.
₦40 + ₦70 − ₦25 = ₦85 thousand. - Revaluation surplus.
₦5 + ₦14 = ₦19 thousand. - Total.
₦135 + ₦70 + ₦14 − ₦25 + ₦15 = ₦209 thousand, which equals ₦90 + ₦15 + ₦19 + ₦85.
Example 3: OCI by class. The year includes a revaluation gain of ₦30,000, a fair value loss of ₦8,000 on a debt instrument at FVOCI and a translation gain of ₦6,000. Required: the classes of OCI.
- Will not be reclassified. Revaluation gain ₦30,000.
- May be reclassified.
−₦8,000 + ₦6,000 = −₦2,000. - Total OCI. ₦28,000.
How to answer in the exam
- Follow the order of the statement. Revenue to profit for the year, then OCI, then total comprehensive income, then the attribution.
- Mark the class of OCI. Say whether it will or may be reclassified.
- Build the equity statement by columns. Opening, each movement, closing. Check that the columns and the rows both total.
- Keep dividends out of profit.
Common mistakes in the exam
- Showing dividends in the statement of profit or loss.
- Taking a revaluation surplus to profit or loss.
- Presenting extraordinary items.
- Forgetting to disclose depreciation and employee costs when classifying by function.
- Leaving a column of the equity statement without a closing balance that agrees to the statement of financial position.
- Forgetting the tax on OCI items.
Quick revision
- One statement or two. Minimum items include revenue, finance costs, tax, discontinued operations, profit, OCI, total comprehensive income.
- Expenses by nature or by function (cost of sales plus nature disclosures).
- OCI: will not be reclassified (revaluation, remeasurements, equity FVOCI); may be (translation, debt FVOCI, cash flow hedges).
- Equity statement: total comprehensive income, policy and error effects, owner transactions, reconciliation.
- Notes: compliance, policies, supporting information, judgements and estimation uncertainty.
Practice questions
These are original questions written in the style of the Institute’s exams. Try each one before you open the answer. Section A is a recall check, because the paper itself is written.
Recall check: multiple choice
Question 1. Performance may be presented as:
- One statement only
- One statement, or a statement of profit or loss followed by a statement of other comprehensive income
- Three statements
- In the notes only
Show the answer
B. Both present total comprehensive income.
Question 2. An entity that analyses expenses by function must:
- Disclose cost of sales separately and give additional information on the nature of expenses, such as depreciation and employee benefits
- Show no cost of sales
- Show only nature
- Show only totals
Show the answer
A. This makes functional analysis more useful.
Question 3. Which is an OCI item that will not be reclassified to profit or loss?
- Exchange differences on translating a foreign operation
- Cash flow hedge gains
- A revaluation surplus on property, plant and equipment
- Gains on debt at fair value through OCI
Show the answer
C. It is transferred within equity if at all.
Question 4. Which may be reclassified to profit or loss?
- A revaluation surplus
- Remeasurement of a defined benefit plan
- Equity at fair value through OCI
- Exchange differences on translating a foreign operation
Show the answer
D. It is reclassified on disposal of the operation.
Question 5. Extraordinary items are:
- Presented separately
- Not presented
- Required
- Allowed for fire losses
Show the answer
B. Material items are disclosed separately instead.
Question 6. The statement of changes in equity shows:
- Total comprehensive income for the period
- Cash flows
- Only profit
- Only dividends
Show the answer
A. With transactions with owners and a reconciliation of each component.
Question 7. Dividends to owners are shown in:
- The statement of profit or loss
- The statement of cash flows only
- The statement of changes in equity (or the notes)
- Revenue
Show the answer
C. They are distributions, not expenses.
Question 8. The notes are normally presented in the order:
- Alphabetical
- Random
- By size
- Statement of compliance, accounting policies, supporting information, other disclosures
Show the answer
D. Supporting information follows the order of the statements.
Question 9. A reclassification adjustment is:
- A correction of an error
- A change of estimate
- An amount reclassified from other comprehensive income to profit or loss
- A dividend
Show the answer
C. For example, on disposal of a foreign operation.
Question 10. A revaluation surplus is shown in:
- Equity, as a separate component
- Liabilities
- Revenue
- Current assets
Show the answer
A. Through other comprehensive income.
Section B style: written questions
Question 11 (10 marks). (a) State FIVE items accounted for in the statement of changes in equity. (5 marks) (b) Explain the two classes of other comprehensive income with an example of each. (5 marks)
Question 12 (15 marks). Revenue ₦800,000; cost of sales ₦520,000; distribution costs ₦60,000; administrative expenses ₦90,000; investment income ₦12,000; finance costs ₦20,000; tax at 30% of profit before tax. Other comprehensive income: revaluation gain ₦30,000; fair value loss on debt at fair value through OCI ₦8,000; translation gain ₦6,000. (a) Prepare the statement of profit or loss to profit for the year. (8 marks) (b) Show other comprehensive income by class. (4 marks) (c) State total comprehensive income. (3 marks)
A further written question
Question 13 (20 marks). At the start of the year equity was share capital ₦100,000, share premium ₦20,000, revaluation surplus ₦8,000 and retained earnings ₦60,000. During the year profit was ₦90,000, other comprehensive income was a revaluation gain of ₦12,000, dividends were ₦30,000 and a share issue raised capital of ₦20,000 and premium of ₦10,000.
(a) Prepare the statement of changes in equity. (12 marks)
(b) State where dividends are shown and why. (4 marks)
(c) State what the notes include. (4 marks)
Model answers
Show the model answer to Question 11
(a) (1 mark each, any five) Total comprehensive income for the period; the effects of retrospective application or restatement; issue of shares; dividends; changes in ownership interests in subsidiaries; transfers between reserves; the reconciliation of each component of equity.
(b) Items that will not be reclassified to profit or loss (1.5), for example a revaluation surplus on property, plant and equipment (1). Items that may be reclassified (1.5), for example exchange differences on translating a foreign operation (1).
Show the model answer to Question 12
(a) Revenue ₦800,000; cost of sales ₦(520,000); gross profit ₦280,000 (2). Distribution ₦(60,000) and administrative ₦(90,000) (2). Investment income ₦12,000 and finance costs ₦(20,000) (2). Profit before tax ₦122,000 (1). Tax 30% ₦36,600; profit for the year ₦85,400 (1).
(b)
- Will not be reclassified: revaluation gain ₦30,000 (2).
- May be reclassified.
−₦8,000 + ₦6,000 = −₦2,000 (2).
(c) ₦85,400 + ₦30,000 − ₦2,000 = ₦113,400 (3).
Show the model answer to Question 13
(a) Opening: capital ₦100,000, premium ₦20,000, revaluation ₦8,000, retained earnings ₦60,000, total ₦188,000 (3). Profit ₦90,000 to retained earnings (2). Other comprehensive income ₦12,000 to revaluation surplus (2). Dividends ₦(30,000) from retained earnings (2). Share issue: capital ₦20,000, premium ₦10,000, total ₦30,000 (1.5). Closing: capital ₦120,000, premium ₦30,000, revaluation ₦20,000, retained earnings ₦120,000, total ₦290,000 (1.5).
(b) Dividends are shown in the statement of changes in equity, or in the notes (2). They are a distribution of profit to owners, not an expense of earning it, so they are not in profit or loss (2).
(c) A statement of compliance; the significant accounting policies (1); supporting information for items on the face of the statements in order (1); other disclosures, the judgements, sources of estimation uncertainty, capital and dividends proposed (2).
Pathfinder on IAS 1 (ii): profit or loss and OCI, changes in equity and notes
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
Part (b)(ii) asks for five items that are accounted for in the statement of changes in equity (5 marks). Part (b)(i) belongs to the previous topic.
Revise first: The statement of changes in equity
The compulsory accounts question requires a statement of comprehensive income (10 marks) and a statement of changes in equity (5 marks). The adjustments belong to other topics.
Revise first: The statement of profit or loss
The compulsory accounts question requires a statement of profit or loss and other comprehensive income (10 marks) and a statement of changes in equity (4 marks). The adjustments belong to other topics.
Revise first: The statement of changes in equity
The compulsory accounts question requires the statement of profit or loss and other comprehensive income together with the statement of changes in equity (15 marks). The adjustments belong to other topics.
Revise first: Other comprehensive income
Source: ICAN Pathfinder, Financial Reporting. Diets covered: Every diet in the Pathfinder, from November Diet, 2021 to May Diet, 2026, was reviewed here. The diets listed above test this topic directly or include it within a longer question..
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