Group Statement of Profit or Loss and Other Comprehensive Income

The consolidated statement of financial position answers the question what does the group own and owe. This chapter answers the other one: what did the group earn. The parent's own statement of profit or loss and other comprehensive income is added to those of its subsidiaries line by line, everything the group did with itself is stripped out, and the result is presented — for accounting periods beginning on or after 1 January 2027 — in the structure IFRS 18 Presentation and Disclosure in Financial Statements requires.

The shape of that statement — the categories, the two required subtotals, how operating expenses are analysed, and what an aggregated line item may and may not be called — is taught in the chapter IFRS 18 – Presentation and Disclosure in Financial Statements. It is not repeated here. What this chapter adds is everything that is true only of a group: whose results go in and from when, what has to be eliminated, which consolidation adjustment lands in which category, and how the result is attributed between the owners of the parent and the non-controlling interests.

1 Whose results go in: control

IFRS 10 Consolidated Financial Statements decides which entities are consolidated, and it does so through one idea: control. An investor controls an investee when, and only when, it has all three of the following:

1. power over the investee — existing rights that give it the current ability to direct the activities that significantly affect the investee's returns;

2. exposure, or rights, to variable returns from its involvement with the investee; and

3. the ability to use its power over the investee to affect the amount of those returns.

All three must be present, and control is reassessed if the facts change. Holding more than half the voting rights is the usual route to power, but it is neither the only one nor conclusive on its own. A parent/subsidiary relationship can exist on less than half the voting rights — through an agreement with other investors, through rights to appoint or remove the majority of the board or to cast the majority of its votes, or through a shareholding large enough to direct the relevant activities in practice against a widely dispersed register.

Control, the acquisition method and goodwill are taught in full in the consolidated statement of financial position chapter. The definition is stated here because it is the test that decides which statements of profit or loss are added together in the first place.

2 Consolidate first, classify second

There is an order to the work, and reversing it produces a whole family of wrong answers.

1. Consolidate. Add the parent's and the subsidiaries' income and expenses across line by line, pro-rating a subsidiary acquired mid-year; eliminate intra-group trading, intra-group interest and intra-group dividends in full; adjust for unrealised profit, for depreciation on fair value uplifts and for any impairment of goodwill; and equity-account any associate or joint venture.

2. Then classify. Take the consolidated income and expenses, put each into its IFRS 18 category, and build the two required subtotals from them.

IFRS 18 has five categories, three of them main. Operating, investing and financing are the three that restructure the statement; income taxes and discontinued operations are the other two, and they sit where you already expect them. Classification is applied to the group's figures, not to each company's, and that single fact settles most of the questions this chapter raises.

Working the two steps in that order gives each consolidation adjustment a home:

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3 What goes into each line

The group column is built one caption at a time. Every line takes 100% of the parent and 100% of each subsidiary — control, not ownership, decides what is added in — and then the eliminations and adjustments are applied.

4 The consolidation adjustments

4.1 Mid-year acquisition

If a subsidiary is acquired part-way through the year its results can be consolidated only from the acquisition date, because that is when the parent gained control. Pro-rate the subsidiary's results line by line — revenue, cost of sales, every expense, the tax charge and each item of other comprehensive income — not just the profit figure. The parent's own results always go in in full: the parent existed for the whole year.

Pro-rating assumes income and expenses accrue evenly, and a question will usually say so. Where it says otherwise — a seasonal trade, or a gain arising on a known date — apportion on the facts given instead.

4.2 Intra-group trading

The group is treated as a single entity, so sales between group companies are sales the group made to itself. Eliminate the whole invoiced amount, whichever way the goods went, from both revenue and cost of sales:

Group profit does not change — the same amount comes out of both lines — but revenue and cost of sales are both overstated until the adjustment is made, and each is a marked figure in its own right. Where the subsidiary was acquired mid-year, eliminate only the intra-group sales made after the acquisition; sales made before it were between unrelated parties.

4.3 Provision for unrealised profit (PUP)

When one group company sells goods to another at a profit and the buyer still holds them at the year end, that profit has not been earned by the group — it is profit the group made from itself, sitting inside the carrying amount of inventory. Strip it out. The adjustment is an increase in cost of sales, made in the seller's column.

The arithmetic turns on whether the question gives a mark-up or a margin. For a mark-up of m% on cost:

PUP = Invoiced value × [m ÷ (100 + m)] × Proportion still held

and for a margin of m% on the selling price:

PUP = Invoiced value × (m ÷ 100) × Proportion still held

Which column the adjustment goes in matters only when the seller is a subsidiary with a non-controlling interest. It then reduces the subsidiary's profit, and so reduces the non-controlling interests' share of it. If the parent was the seller, the whole of the adjustment falls on the owners of the parent. Either way it lands in cost of sales, so it is an operating item.

4.4 Dividends

Only income from outside the group is income of the group. A dividend the parent receives from a subsidiary is the group paying itself, so it is eliminated in full from investment income. Deduct the parent's share of the subsidiary's dividend: the non-controlling interests' share of that dividend does leave the group, but it is a distribution to owners and belongs in the consolidated statement of changes in equity, not here.

What survives — dividends and interest received from investments outside the group — is investing income, presented between operating profit and profit before financing and income taxes. A dividend received from an associate is not income at all: it reduces the carrying amount of the investment, so it never appears in investment income either.

4.5 Fair value adjustments

On acquisition the subsidiary's identifiable assets and liabilities are brought into the group accounts at fair value. Where the fair value of a depreciable asset exceeded its carrying amount in the subsidiary's own books, the group must charge depreciation on the uplift as well. Any change arising from the fair value exercise — extra depreciation, or a movement on a contingent liability recognised at acquisition — is accounted for in the subsidiary's column, because it is an adjustment to the subsidiary's assets and liabilities; it then flows into the non-controlling interests' share automatically.

4.6 Impairment of goodwill

Goodwill is tested for impairment every year. The charge is an operating expense — it goes to administrative expenses, to operating expenses or to a line of its own, as the question directs — and where it falls between the parent and the non-controlling interests depends on how the non-controlling interest was measured at acquisition:

• Non-controlling interest at fair value (full goodwill). The goodwill recognised includes the non-controlling interests' share, so the impairment is shared in the same proportion. Put it in the subsidiary's column: the non-controlling interests' share then falls out automatically when that column is totalled for the attribution.

• Non-controlling interest at the proportionate share of net assets. Only the parent's share of goodwill was ever recognised, so the whole impairment falls on the owners of the parent. Put it in the parent's column.

5 Attribution: profit for the year and total comprehensive income

The consolidated statement includes 100% of every subsidiary's income and expenses, because the group controls them. Part of the resulting profit belongs to the other shareholders in those subsidiaries. The statement therefore ends by attributing two figures — and only two:

5.1 Working out the non-controlling interests' share

The figure is a percentage of the subsidiary's own profit, as adjusted in the consolidation. In a columnar answer it is simply the total of the subsidiary's column; written out as a working it is:

The same column, plus the subsidiary's own other comprehensive income for the period, gives the non-controlling interests' share of total comprehensive income. The amounts attributable to the owners of the parent are then balancing figures — the group total less the non-controlling interests' share.

6 Other comprehensive income in a group

Other comprehensive income is consolidated exactly as profit or loss is: 100% of the parent plus 100% of each subsidiary, pro-rated from the acquisition date, with any intra-group items eliminated. Two things about it are worth stating plainly, because students go looking for them and they are not there.

• Other comprehensive income is not categorised. The operating, investing and financing categories apply to profit or loss only. There is no operating/investing/financing analysis of other comprehensive income. IFRS 18 did not change the split between profit or loss and other comprehensive income either, or the recycling of the items that recycle.

• It is attributed, though. Total comprehensive income is split between the owners of the parent and the non-controlling interests in its own right, using the subsidiary's total comprehensive income rather than its profit. That is the one step this statement has that the group statement of profit or loss alone does not.

7 Discontinued operations and assets held for sale

A group that is selling or closing part of itself has one more presentation step. IFRS 5 Non-current Assets Held for Sale and Discontinued Operations belongs here because the component being disposed of is usually a subsidiary, and because the discontinued-operation classification changes where the component's results appear in this statement.

A discontinued operation is a component of the entity — operations and cash flows clearly distinguishable from the rest, operationally and for reporting purposes — that has been disposed of during the period or is classified as held for sale at the reporting date, and that also:

• represents a separate major line of business or geographical area of operations — one factory, or one product dropped from a range, is not enough;

• is part of a single co-ordinated plan to dispose of one; or

• is a subsidiary acquired exclusively with a view to resale.

The consequence is a single line. Everything the operation earned and spent — revenue, cost of sales, operating expenses, finance costs and its own tax — comes out of the continuing captions and is presented as one post-tax figure at the foot of the statement, below the income tax expense, with the analysis behind it given in a note. That figure also carries any post-tax gain or loss on remeasuring the operation to fair value less costs to sell, and on the disposal itself. The prior year is re-presented on the same basis. A disposal that does not meet the definition produces no single line: those results stay in continuing operations.

Discontinued operations is a category in its own right — one of the five — and it lies outside the three main categories and outside both required subtotals. Operating profit and profit before financing and income taxes are struck on continuing operations; the discontinued figure is added after the income tax expense to reach profit for the year, which is then attributed once between the owners of the parent and the non-controlling interests. IFRS 5 asks in addition for the owners' share to be analysed between continuing and discontinued operations — a disclosure, not a line on the face. The categories themselves are taught in the chapter IFRS 18 – Presentation and Disclosure in Financial Statements.

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8 Worked examples

9 Test your knowledge