Section 5 – 5.5 Two-statement approach

[et_pb_section bb_built=”1″ admin_label=”Header – All Pages” transparent_background=”off” background_color=”#1e73be” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” custom_padding=”0px||0px|” next_background_color=”#000000″ custom_padding_tablet=”50px|0|50px|0″ custom_padding_last_edited=”on|desktop” global_module=”1221″][et_pb_row admin_label=”row” global_parent=”1221″ make_fullwidth=”off” use_custom_width=”off” width_unit=”on” use_custom_gutter=”off” custom_padding=”||5px|” allow_player_pause=”off” parallax=”off” parallax_method=”on” make_equal=”off” parallax_1=”off” parallax_method_1=”off” background_position=”top_left” background_repeat=”repeat” background_size=”initial”][et_pb_column type=”4_4″][et_pb_post_title global_parent=”1221″ title=”on” meta=”off” author=”on” date=”on” categories=”on” comments=”on” featured_image=”off” featured_placement=”below” parallax_effect=”on” parallax_method=”off” text_orientation=”left” text_color=”light” text_background=”off” text_bg_color=”rgba(255,255,255,0.9)” module_bg_color=”rgba(255,255,255,0)” use_border_color=”off” border_color=”#ffffff” border_style=”solid” custom_padding=”10px|||” parallax=”on” background_color=”rgba(255,255,255,0)” /][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section bb_built=”1″ fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” custom_padding=”30px||0px|” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” background_color=”#1e73be” prev_background_color=”#000000″ next_background_color=”#ffffff” custom_padding_tablet=”0px||0px|” global_module=”1228″][et_pb_row global_parent=”1228″ make_fullwidth=”off” use_custom_width=”off” width_unit=”on” use_custom_gutter=”off” custom_padding=”30px||0px|” allow_player_pause=”off” parallax=”off” parallax_method=”off” make_equal=”off” parallax_1=”off” parallax_method_1=”off” column_padding_mobile=”on” background_position=”top_left” background_repeat=”repeat” background_size=”initial”][et_pb_column type=”4_4″][et_pb_text global_parent=”1228″ background_layout=”light” text_orientation=”left” use_border_color=”off” border_color=”#ffffff” border_style=”solid” background_position=”top_left” background_repeat=”repeat” background_size=”initial”] [breadcrumb] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section bb_built=”1″ fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″ custom_padding_tablet=”0px||0px|” custom_padding_last_edited=”on|desktop” prev_background_color=”#1e73be” next_background_color=”#000000″][et_pb_row][et_pb_column type=”4_4″][et_pb_toggle admin_label=”Index” _builder_version=”3.0.106″ title=”Index” open=”off”]

[/et_pb_toggle][/et_pb_column][/et_pb_row][et_pb_row][et_pb_column type=”3_4″][et_pb_text admin_label=”Main Body Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color_all=”off” module_alignment=”left” _builder_version=”3.0.106″]

5.5 Two-statement approach

5.5.1 Extract from FRS102: Section 5.7-5.7D and Section 5.9

5.7 Under the two-statement approach, an entity shall present in an income statement, the items to be included in a profit and loss account in accordance with one of the following requirements:

(a) Part 1 General Rules and Formats of Schedule 1 to the Regulations;

(b) Part 1 General Rules and Formats of Schedule 2 to the Regulations;

(c) Part 1 General Rules and Formats of Schedule 3 to the Regulations; or

(d) Part 1 General Rules and Formats of Schedule 1 to the LLP Regulations.

The consolidated income statement of a group shall be presented in accordance with the requirements for a consolidated profit and loss account of Schedule 6 to the Regulations or Schedule 3 to the LLP Regulations.

5.7A An entity choosing to apply paragraph 1A(2) of Schedule 1 to the Regulations and adapt one of the profit and loss account formats shall, as a minimum, include in its income statement line items that present the amounts in paragraphs 5.5B(a) to 5.5B(g), with profit or loss as the last line. The statement of comprehensive income shall begin with profit or loss as its first line and shall display, as a minimum, line items that present the amounts in paragraphs 5.5B(h) to 5.5B(j) and paragraph 5.6(b) for the period, with total comprehensive income as the last line.

5.7B If an entity presents profit or loss in an income statement, it shall present the information required in paragraph 5.6(a) in that statement.

5.7C The statement of comprehensive income shall begin with profit or loss as its first line and shall display, as a minimum, line items that present the amounts in paragraphs 5.5A and 5.6(b) for the period.

5.7D In addition to the requirements of paragraphs 5.5 or 5.7, as a minimum, turnover must be presented on the face of the income statement (or statement of comprehensive income if presented).

5.9 An entity shall present additional line items, headings and subtotals in the statement of comprehensive income (and in the income statement, if presented), when such presentation is relevant to an understanding of the entity’s financial performance.

5.5.2 OmniPro comment

5.5.2.1 Overview

The two statement approach involves the income statement/profit and loss account being shown on a different page to the other comprehensive income. See practical application at 5.5.2.3.

Other comprehensive income relate to items of income and expenses that are not recognised in the profit and loss as required or permitted by FRS 102.

5.5.2.2 Formats

5.5.2.2.1 Profit and loss account/income statement formats

The references at Section 5.5. of FRS 102 are to the UK Companies Act. The relevant references to the Irish Companies Acts with regard to the profit and loss layout are:

Format 1 Profit and loss format – Schedule 3 of Companies Act 2014 (see extract from this format at 5.5.2.3.2.)

Format 2 Profit and loss format – Schedule 3 of Companies Act 2014

The relevant references to Irish Companies Acts with regard to the consolidated balance sheet (i.e. consolidated statement)) are:

Format 1 Profit and loss format – Schedule 4 of Companies Act 2014 (see extract for this format at 5.5.2.3.1)

Format 2 Profit and loss format – Schedule 4 of Companies Act 2014

Additional line items, headings or subtotals can be added to the profit and loss/income statement if it is relevant to the understanding and is stated in Section 5.9 of FRS 102. Turnover/revenue must be shown on the face of the profit and loss account/income statement as stated in Section 5.7D of FRS 102. Section 5.6 of FRS 102 requires a split of the profit and loss to be shown between amounts attributable to controlling interests and non-controlling interests.

It is evident from the above that the income statement can be called a profit and loss account or statement of comprehensive income. The profit and loss should follow the layout of the Companies Act or can be laid out in the format in Section 5.5B and Section 5.5C of FRS 102 as long as the layout follows the substance of Part 1 general rules and formats schedules 1 to 3 of Companies Act 2006 for UK entities and of schedule 3 in Companies Act 2014 ROI entities. Section 5.5B and 5.5C of FRS 102 relates to a different choice as to what format the profit and loss account income statement/statement of comprehensive income can be presented in. UK companies can currently use this layout if they wish, providing they have then adopted the amendments made to FRS 102 in September 2015. Section 5.5B and Section 5.5C of FRS 102 have been discussed in the section titled ‘Alternative profit and loss format as set out in example 4 at 5.6.2.2.

5.5.2.2.2 Other comprehensive income – statement of comprehensive income

The statement of comprehensive income which shows the other comprehensive income (OCI) should show the profit for the financial year as the first line item as required by Section 5.7A of FRS 102.

The other comprehensive income is FRS language and not dealt with within company law Section 5.5A of FRS 102 requires another comprehensive income (OCI). That section requires disclosure of the transactions recognised through OCI to be shown net of tax or alternatively they can be shown gross and the tax affect shown separately. They must be split out be nature. If consolidated accounts are being prepared then, the share of the associate or joint venture in relation to the OCI must be shown separately. See example of an OCI at 5.5.2.3.1 for a group and 5.5.2.3.2 for a stand alone entity.

5.5.2.3 Practical application of the two statement approach showing format 1

See illustration of the above parts as applicable to ROI

5.5.2.3.1 Two statement approach for a Group

Example 3: Two statement approach for a Group

Consolidated Profit and Loss Account
For the Year Ended 31 December 2015
	Notes	2015	2014
		CU	CU
Turnover	1	XXXXX	XXXXX
Cost of sales		(XXXX)	(XXXX)
Gross profit	2	XXXX	XXXX

Selling and distribution costs		(XXX)	(XXX)
Administrative expenses		(XXX)	(XXX)
Other operating income		XXX	XXX
Group operating profit	3	XXX	XXX

Share of profit in associates	4	XXX	XXX
Share of profit in joint venture	5	XXX	XXX
Profit before interest and taxation		XXXX	XXXX

Interest receivable and similar income	6	XXX	XXX
Interest payable and similar expenses	7	(XXX)	(XXX)
Profit before taxation		XXXX	XXXX

Tax on profit	8	(XXX)	(XXX)

Profit for the financial year		1,000,000	500,000

Profit for the financial year attributable to:

Non-controlling interests

XXXX

Owners of the company

XXX

1,000,000

500,000

SEPARATE PAGE IN THE FINANCIAL STATEMENTS INCLUDE:

Consolidated Statement of Comprehensive Income

Profit for the financial year	1,000,000	500,000
Exchange differences on retranslation of foreign operations	XXX	XXX
Group cash flow hedges
– effective portion of changes in fair value to cash flow hedges	9 XXX	XXX
– fair value of cash flow hedges transferred to income statement	10 XXX	XXX
Actuarial loss in respect of the defined pension scheme	11 (XXX)	(XXX)
Gain/(loss) on revaluation of intangible assets	12 XXX	(XXX)
Gain/(loss) on revaluation of property, plant and equipment	13 XXX	(XXX)
Gain/(loss) on revaluation of subsidiaries, associates, etc.	14 XXX	(XXX)
Deferred tax on components of other comprehensive income	15 XXX	XXX

Total other comprehensive income for the year net of tax	200,000	(100,000)

Total comprehensive income for the year	1,200,000	400,000

Total comprehensive income for the financial year attributable to: Non-controlling interests	XXXX	XXXX
Owners of the company	XXX	XXX
	1,200,000	400,000

Note: The Companies (Accounting) Act 2017 took out the words “on ordinary activities” in the profit and loss and therefore all periods beginning on or after 1 January 2017, it is no longer permitted. The words “interest payable and similar charges’ was also replaced with ‘interest payable and similar expenses.”

5.5.2.3.2 Two statement approach for an individual entity (i.e. not group accounts)

Example 3(a): Two statement approach for an individual entity (i.e. not group accounts)

*Profit and Loss Account*
For the Year Ended 31 December 2015	Notes	2015	2014
		CU	CU
Turnover	1	XXXXX	XXXXX
Cost of sales		(XXXX)	(XXXX)
Gross profit	2	XXXX	XXXX
Selling and distribution costs		(XXX)	(XXX)
Administrative expenses		(XXX)	(XXX)
Other operating income		XXX	XXX
Operating profit	3	XXX	XXX
Income from shares in group undertakings	4	XXX	XXX
Income from shares in other financial assets	5	XXX	XXX
Income from shares in participating interests	6	XXX	XXX
Profit before interest and taxation		XXXX	XXXX
Interest receivable and similar income	7	XXX	XXX
Interest payable and similar expenses	8	(XXX)	(XXX)
Profit before taxation		XXXX	XXXX
Tax on profit	9	(XXX)	(XXX)
Profit for the financial year		1,000,000	500,000

Profit for the financial year attributable to:

Owners of the parent company

1,000,000

500,000

1,000,000

500,000

SEPARATE PAGE IN THE FINANCIAL STATEMENTS INCLUDE:

Consolidated Statement of Comprehensive Income

Profit for the financial year	1,000,000	500,000
Cash flow hedges
– effective portion of changes in fair value to cash flow hedges	10 XXX	XXX
– fair value of cash flow hedges transferred to income statement	11 XXX	XXX
Actuarial loss in respect of the defined pension scheme	12 (XXX)	(XXX)
Gain/(loss) on revaluation of intangible assets	13 XXX	(XXX)
Gain/(loss) on revaluation of property, plant and equipment	14 XXX	(XXX)
Gain/(loss) on revaluation of subsidiaries, associates, etc.	15 XXX	(XXX)
Deferred tax on components of other comprehensive income	16 XXX	XXX

Total other comprehensive income for the year net of tax	200,000	(100,000)

Total comprehensive income for the year	1,200,000	400,000

Total comprehensive income for the financial year attributable to:
Owners of the parent company	XXX	XXX
	1,200,000	400,000
Note: The Companies (Accounting) Act 2017 took out the words “on ordinary activities” in the profit and loss and therefore all periods beginning on or after 1 January 2017, it is no longer permitted. The words “interest payable and similar charges’ was also replaced with ‘interest payable and similar expenses.”