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    PL or OCI

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    Laskar REAZ
    This article discusses when gains and losses are recognized in the profit and loss (P&L) account versus other comprehensive income (OCI). Generally, gains and losses appear in the P&L, but certain items under IAS 16, IAS 21, IAS 19, IFRS 9 are recognized directly in equity and included in OCI. These tend to be unrealized, non-operating, and non-recurring gains and losses. Recognizing these items in OCI rather than P&L results in reported profits that are more representative of underlying earnings and predictable. However, total comprehensive income reported in OCI and P&L provides a complete picture of gains and losses for the period.

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    PL or OCI

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    Laskar REAZ
    52 views4 pages
    This article discusses when gains and losses are recognized in the profit and loss (P&L) account versus other comprehensive income (OCI). Generally, gains and losses appear in the P&L, but certain items under IAS 16, IAS 21, IAS 19, IFRS 9 are recognized directly in equity and included in OCI. These tend to be unrealized, non-operating, and non-recurring gains and losses. Recognizing these items in OCI rather than P&L results in reported profits that are more representative of underlying earnings and predictable. However, total comprehensive income reported in OCI and P&L provides a complete picture of gains and losses for the period.

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    This article discusses when gains and losses are recognized in the profit and loss (P&L) account versus other comprehensive income (OCI). Generally, gains and losses appear in the P&L, but certain items under IAS 16, IAS 21, IAS 19, IFRS 9 are recognized directly in equity and included in OCI. These tend to be unrealized, non-operating, and non-recurring gains and losses. Recognizing these items in OCI rather than P&L results in reported profits that are more representative of underlying earnings and predictable. However, total comprehensive income reported in OCI and P&L provides a complete picture of gains and losses for the period.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    52 views4 pages

    PL or OCI

    Uploaded by

    Laskar REAZ
    This article discusses when gains and losses are recognized in the profit and loss (P&L) account versus other comprehensive income (OCI). Generally, gains and losses appear in the P&L, but certain items under IAS 16, IAS 21, IAS 19, IFRS 9 are recognized directly in equity and included in OCI. These tend to be unrealized, non-operating, and non-recurring gains and losses. Recognizing these items in OCI rather than P&L results in reported profits that are more representative of underlying earnings and predictable. However, total comprehensive income reported in OCI and P&L provides a complete picture of gains and losses for the period.

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    PL or OCI?

    by Tom Clendon
    Where and why are gains and losses
    recognised?

    Sometimes gains & losses appear in the


    Profit or Loss account (P&L) but other
    gains & losses are recognised in equity &
    included in Other Comprehensive Income
    (OCI).

    Why is that? This article will explain and


    give examples!
    PL or OCI?
    Whether the gain or loss appears in the P&L or is reported
    directly in equity and included in OCI is a matter
    determined by individual accounting standards. It is a rules-
    based approach.
    The default is however that gains & losses appear in the P&L.
    The following accounting standards require that certain
    gains and losses are recognised in equity and reported in OCI.

    🏭 IAS16 Property Plant & Equipment and


    revaluation gains & losses.

    But the devil is in the detail! This is because sometimes


    revaluation gains and losses are recognised in P&L.
    Revaluation gains are in recognised in equity, unless they
    are a reversal of a loss previously recognised in P&L. And
    revaluation losses are recognised in equity only if they can
    be offset against previous gains relating to the same asset.

    💰
    IAS 21 Foreign Currency and the group
    exchange differences arising on the
    retranslation of an overseas subsidiary.

    However, it’s worth noting that foreign exchange differences


    at the individual company stage are recognised in P&L.

    👥 IAS 19 Employee Benefits and the


    remeasurement gain or loss that arises on
    defined benefit pension schemes.
    PL or OCI?

    🎸
    IFRS 9 Financial Instruments and the gains
    or losses on financial assets designated as
    Fair Value Through OCI.

    🎺
    IFRS 9 Financial Instruments and the gain or
    loss on derivatives designated as a cash flow
    hedge (to the extent they are effective).
    Observation
    I observe that the above gains & losses recognised directly in
    equity and reported in OCI tend to be
    unrealised,
    not from operating activities and,
    non-recurring in nature

    Thus, the exclusion of these gains & losses from the P&L
    results in reported profits being more representative of
    underlying earnings than would otherwise be the case. This
    means when it comes to taking historic profits reported in
    P&L & extrapolating them into the future, the reported profits
    are relatively more predictable (and therefore more relevant).

    However, having excluded such gains and losses from the


    P&L it means that the P&L is an incomplete record of gains
    and losses recognised in the period. This is addressed by
    including those gains and losses excluded from PL and
    presenting them in OCI. In this way a total comprehensive
    income figure is reported. This figure is the aggregate of the
    P&L and OCI and so is all gains & losses recognised in the
    reporting period. Thus, users are presented with a complete
    picture (which therefore ensures a faithful representation).
    Conclusion
    And everyone wants information to be presented in a way
    that is relevant and a faithful representation, as after all,
    that is what ensures that that information is useful to the
    users of the financial statements!

    Want to pass SBR?


    Get in touch with Tom.
    +44 7725 350793

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