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Section 5 – Introduction
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Section 5 – Analysis
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- Section 1
- Section 2
- Section 3
- Section 4
- Section 5
- Section 6
- Section 7
- Section 8
- Section 9
- Section 10
- Section 11
- Section 12
- Section 13
- Section 14
- Section 15
- Section 16
- Section 17
- Section 18
- Section 19
- Section 20
- Section 21
- Section 22
- Section 23
- Section 24
- Section 25
- Section 26
- Section 27
- Section 28
- Section 29
- Section 30
- Section 31
- Section 32
- Section 33
- Section 34
- Section 35
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- Section 1
- Section 2
- Section 3
- Section 4
- Section 5
- Section 6
- Section 7
- Section 8
- Section 9
- Section 10
- Section 11
- Section 12
- Section 13
- Section 14
- Section 15
- Section 16
- Section 17
- Section 18
- Section 19
- Section 20
- Section 21
- Section 22
- Section 23
- Section 24
- Section 25
- Section 26
- Section 27
- Section 28
- Section 29
- Section 30
- Section 31
- Section 32
- Section 33
- Section 34
- Section 35
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Section Downloads
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Contents
5.2 Small companies – exemptions.
5.2.1 Extract from FRS102: Section 5.1A.
5.3 Presentation of total comprehensive income.
5.3.1 Extract from FRS102: Section 5.2-5.3.
5.3.2.2 Implications of changing between the two layouts.
5.4 Single-statement approach.
5.4.1 Extract from FRS102: Section 5.5-5.6, Section 5.7D and Section 5.9.
5.4.2.2.1 Profit and loss account/income statement.
5.4.2.2.2 Other comprehensive income.
5.4.2.3 Practical application of format 1 showing the single statement approach for group.
5.4.2.3.1 Practical application of single statement approach for an individual entity.
5.5.1 Extract from FRS102: Section 5.7-5.7D and Section 5.9.
5.5.2.2.1 Profit and loss account/income statement formats.
5.5.2.2.2 Other comprehensive income – statement of comprehensive income.
5.5.2.3 Practical application of the two statement approach showing format 1.
5.5.2.3.1 Two statement approach for a Group.
5.5.2.3.2 Two statement approach for an individual entity (i.e. not group accounts).
5.6 Alternative profit and loss format.
5.6.1 Extract from FRS102: Section 5.7B-5.7C.
5.7.1 Extract from FRS102: Section 5.7E-5.7F.
5.7.2.1 Discontinued operation and when it is to be considered to be discontinued.
5.7.2.2 Disclosure requirements for discontinued operations.
5.8 Prior year/period adjustments.
5.8.1 Extract from FRS102: Section 5.8.
5.9 Exceptional items and extraordinary items.
5.9.1 Extract from FRS102: Section 5.9A and Section 5.10-5.10B.
5.9.2.1.1 Exceptional items defined.
5.9.2.1.2 Examples of exceptional items.
5.9.2.1.4 Disclosure requirements of exceptional items in the notes.
5.9.2.1.5 Illustration of disclosure of exceptional items.
5.9.2.1.5.1 Exceptional items shown on face of profit and loss account.
5.9.2.1.5.2 Exceptional items shown in notes and not of the face of profit and loss account.
5.9.2.1.5.3 Exceptional itekm accounting policy disclosure.
5.10.1 Extract from FRS102: Section 5.9B.
5.11.1 Extract from FRS102: Section 5.11.
5.11.2.2 Analysis by function of expense.
5.11.2.2.1 Format 1 of Companies Act 2006 – for UK entities.
5.11.2.2.2 Format 1 Companies Act 2014 – for Republic of Ireland entities.
5.11.2.3 Analysis by nature of expense.
5.11.2.3.1 Format 2 of Companies Act 2006 – for UK entities.
5.11.2.3.2 Format 2 of Companies Act 2014 for Republic of Ireland entities.
5.12.1.2 For UK Parent Company.
5.12.1.3 For Republic of Ireland Parent Company.
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Section 5: Statement of Comprehensive Income and Income Statement
Summary
Section 5 deals with the presentation of total comprehensive income for the reporting period. It allows presentation in one or two statements and sets out the information to be presented in those statements.
What is new?
Section 5 requires the presentation of total comprehensive income either in:
- A single statement of comprehensive income; or
- A separate profit and loss account and a separate statement of comprehensive income which presents all items recognised outside profit or loss.
The statement of comprehensive income and other comprehensive income continues to require the profit and loss account to be laid out in line with that dictated in the Companies Act. There are two options with regard to layout; the single statement approach, being a statement of comprehensive income or a two statement approach, being an income statement and a statement of comprehensive income.
Disclosure of operating profit is not required, however, an entity can elect to show this as long as the expenses within it are actually operating expenses by nature and do not exclude such type of expenses. The disclosure of operating profit was required under old GAAP.
Profit and loss for the period and total comprehensive income for the period are allocated in the statement of comprehensive income to the amounts attributable to non-controlling interests and owners of the parent. This was not required under old GAAP.
Where there are discontinued operations, Section 5 requires that an additional column be included so that the results on a line item basis are split between continuing and discontinuing operations with a total column for the year in the income statement. This is also required for the comparative period. This contrasts with old GAAP, which required that the discontinued operation be shown on a line by line basis to include disclosing the split between turnover and operating profit. It did not require disclosure of items below this line other than for non-operating exceptional items.
Under FRS 102 in order for an operation/business to be disclosed as discontinued, the operation/business must have been disposed of (in relation to a sale) or have been closed (in relation to a termination) by the balance sheet date. FRS 102 also allows a subsidiary which was acquired exclusively with a view to resale to be shown as a discontinued operation. This differs under old GAAP whereby an operation/business could be classified as discontinued if the sale or termination was completed within three months of the balance sheet date. A subsidiary which was acquired exclusively with a view to resale was not included in the definition of discontinued operations.
What is different?
An entity is required to present a statement of comprehensive income, either in a single statement or in two statements comprising a separate income statement and statement of comprehensive income. A change from one method to another is a change of accounting policy and therefore has to be applied retrospectively. Under old GAAP there was no standard dealing with the layout of the primary financial statements, instead, this was dealt with by company law.
Section 5 requires management to select a method of presenting its expenses by function or nature. Additional disclosure is required if presentation by function is chosen.
Exceptional items are not defined. However, each material class of item is presented separately on the face of the profit and loss where they are relevant to an understanding of financial performance. It is likely an accounting policy will need to be included in the notes to the financial statements detailing what an entity determines as exceptional. This contrasts with old GAAP (FRS 3) where an exceptional item was defined and provided strict guidance on when an exceptional item should be shown on the face of the profit and loss account or in the notes thereto. FRS 102 on the other hand does not require exceptional items to be shown below the operating profit line nor does it dictate which items are to be shown on the face of the profit and loss account instead it leaves this up to the entity to decide based on materiality.
Section 5 allows additional line items to be included on the face of the profit and loss where they are relevant to an understanding of the financial positions. There was no such ability under old GAAP. The statement of recognised gains and losses is now known as the ‘other comprehensive income’ under FRS 102.
Extraordinary items are defined as possessing a high degree of abnormality and are considered unlikely to occur in practice.
Other standards affecting Section 5:
Section 35.9(d) mandates that where a business was previously considered a discontinued operation under old GAAP it is not adjusted on transition to new GAAP.
What are the key points?
Profit and loss and statement of total recognised profit and loss is now called a statement of comprehensive income and other comprehensive income respectively.
Exceptional items not defined but where material an additional line is included in the profit and loss where relevant to the entity’s performance.
What do accountants need to do?
Be aware of the change in wording and statement presentation as described above as well as know the additional disclosures under FRS 102 so that they can prepare financial statements which are compliant with FRS 102.
Advise clients on the new guidance with regard to discontinued operations and exceptional items.
What do companies need to do?
Be aware of the change in wording and statement presentation as described above as well as know the additional disclosures under FRS 102 so that they can prepare financial statements which are compliant with FRS 102.
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Examples
Example 1: Example of Single statement approach for a Group.
Example 2: Example of Single statement approach for an individual entity (i.e. not group accounts).
Example 3: Two statement approach for a Group.
Example 3(a): Two statement approach for an individual entity (i.e. not group accounts).
Example 4: Consolidated Statement of Comprehensive/Income statement approach – Alternative Approach.
Example 5: Discontinued operations not ceased.
Example 6: Exceptional item disclosure note for an accounting policy.
Example 7: See below the extract from format 1 of the Companies Act 2006 for the UK.
Example 9: See below the extract from format 2 of the Companies Act 2006 for the UK.
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Downloads
Download “Section 5 Statement of Comprehensive Income and Income Statement Detailed Guide (PDF)”
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Section 5 Detailed Guide
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Downloads
Download “FRS 102 35 Part Differences Quick Guide”
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Download “FRS 102 35 Part Differences Guide”
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Download “FRS 102 Differences on Transition Checklist”
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Download “FRS 102 Differences on Transition Examples Appendix”
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Section 5 – Difference Guide – Statement of Comprehensive Income and Income Statement Position
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Downloads
Download “Section 5 Disclosure Examples”
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Download “FRS 102 Disclosure Checklist UK (PDF)”
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Section 5 – Disclosure Checklist
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