Open almost any set of financial statements prepared under IFRS 18 and the statement of profit or loss looks different. Two subtotals now sit where many preparers used to choose their own. What exactly goes into each of them, and why is the second one not simply the first under another name? That is the question students, analysts and finance teams keep asking as the standard comes into force.
Why the subtotals matter
The new subtotals are built from categories, not from labels. Every line of income and expense is placed in a category first, and the subtotals are then defined by which categories they include. That changes how analysts compare companies, how auditors test presentation and how interviewers probe whether a candidate really understands the new statement. A line placed in the wrong category moves a subtotal that readers now rely on.
The questions the lesson answers
The lesson builds operating profit and profit before financing and income taxes from the ground up under IFRS 18.69 to IFRS 18.71. It asks how interest income and interest expense are placed, and why the asset or liability that produces a line matters more than the word interest. It looks at how operating expenses can be analysed and what that choice does, and does not do, to the subtotals. It also asks what changes when one of an entity’s main business activities is providing finance to its customers, and how an accounting policy choice open to such an entity bears on the second subtotal.
A retailer worked through
One South African hardware retailer runs through the whole lesson, applying IFRS 18 early. You watch its lines sorted into categories, see each subtotal built on a waterfall and follow the bridge down to profit for the year. The lesson is plain about what the example does not show, so you do not stretch one retailer into a rule for every entity.
Take the full lesson
If you want to build both subtotals with confidence and explain every line to an auditor or an interviewer, work through the full IFRS 18 mandatory subtotals lesson on Amatle Institute.
Questions about this topic
What are the mandatory subtotals under IFRS 18?
IFRS 18.69 lists the totals and subtotals an entity presents under the general rules. The lesson builds each one from its categories and asks why the second is not the first under another name.
Where does interest go in the IFRS 18 statement of profit or loss?
The lesson asks what decides the category of an interest line, and why the asset or liability that produces it matters more than the word interest.
Does every entity present profit before financing and income taxes?
That is one of the questions the lesson takes up. It follows the answer through for more than one kind of entity, so you can test it against your own.
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IFRS and SAM, one requirement at a time
Each week you get the Institute's new articles: one requirement of IFRS 17, IFRS 9, IFRS 15, IFRS 18 or SAM, worked on a South African case. You start with the free IFRS 18 readiness checklist, ten areas to work through before IFRS 18 takes effect, each with its paragraph reference.