Else here.

And today, we're talking about the statement

of income, comprehensive income under IFRS.

I have already produced a series of videos

where I introduce students to all the financial statements

using IFRS, but at the introductory accounting level.

If you have not watched those videos,

I highly recommend you do so.

So back to the statement of income,

comprehensive income for intermediate accounting.

First, it's important to understand

that IFRS allows a lot of freedom

with regards to the format of financial statements.

Why?

Because the objective of financial reporting

is to provide financial information which

is useful for decision making--

generally decisions that investors, lenders,

and other creditors make about money.

They're called capital providers for a reason.

The information a mining company needs

to provide to stakeholders to be useful

may not be the same as the information a bank

would provide, because the industries

differ in significant ways.

That's why IFRS allows a lot of freedom with regard

to the format of the financial statements.

Different industries need to show different things

to be useful to their stakeholders, their decision

makers.

Having said that, IFRS does not allow total freedom.

To ensure a minimum level of information for all businesses,

IFRS has some basic presentation requirements.

Let's go through the listing of basic items

that need to be presented on the statement of income,

comprehensive income under IFRS.

There are nine required line items.

First is revenues.

Second, costs incurred for financing the business.

Third, profit or loss from associates or joint ventures

accounted for using the equity method.

Fourth, income taxes spent or refund

from continuing operations.

Fifth, discontinued operations, net of income taxes.

Six, profit or loss, also called net income or net loss.

Seven, earnings per share for continuing and discontinuing

operations.

Eight, other comprehensive income with details.

Nine, comprehensive income.

Now that we've listed all of the items,

let's look at each in detail so you

get a better idea of what each of these line items requires.

First, revenues are likely the most important number

on the income statement, because it

is the key to a business's performance, which is what

the income statement measures.

It must be grouped by type.

For example, income from selling products

must be separated from interest income and income

from investments.

Each category of revenue, if it's material,

must be reported separately, either on the face

of the statement or in the notes.

What does that mean?

On the face of the financial statement means

it is placed on the actual financial statement,

broken down line by line item and providing a total.

However, in some cases, it is impossible to provide

all the details in the statements,

since it's just too detailed.

That problem is solved by providing a condensed statement

and then providing supplementary schedules in the notes

to the financial statements.

These schedules in the notes support the total

on the face of the financial statement.

This can reduce the statement to just a few lines

on a single page.

Anyone wishing to know the details

must pay attention to the supporting schedules,

which are located in the notes.

Revenues, categorized by type.

The second line item is financing costs,

and they must be reported separately.

What did it cost the company to finance

their growth and expansion and their day-to-day operations?

The cost of financing may seriously

affect the business's performance,

and it will absolutely affect the assessment

of how risky the business is.

This is with regards to providing the business

with additional capital, such as a loan,

at some point in the future.

Because it is so important, it must

be included as a separate line item

on the face of the statement.

Third is the profit or loss from investments which are accounted

for using the equity method.

What are we talking about here?

Let's break it down for a moment.

Earnings are lost from what investments?

From either joint ventures or associates.

What are they?

For a joint venture, we're talking

about a joint arrangement, as defined under IFRS 11.

A joint arrangement is where two or more entities agree

to partner together for a specific reason,

like an activity, and they sign a contract which states

how the partnering will work.

The arrangement usually has a limited life

and a carefully-defined set of activities or objectives.

An example would be two mining companies

who have a joint arrangement to explore

a specific geographical area in Canada.

Once that exploration is finished,

so is the joint arrangement.

Key to a joint arrangement is that the parties

have joint control, meaning that any strategic decisions must

be agreed to by all the parties, a unanimous consent.

In a joint venture, the investor--

the entity who makes the investment--

has a right to the net assets of the joint venture.

The other type of investment is an associate.

This is where the investor owns over 20% of the shares

of an other entity.

The 20% is a rule of thumb, meaning

that if the ownership share is 20% or greater,

we assume there an associate.

But really, we would have to look at the facts

before we make this decision.

If that 20% rule applies, then the investor

is assumed to have significant influence.

This means they have the power to involve themselves

in the operations of the entity they are invested in.

This is often demonstrated by things

such as being able to vote in a member of the board

of directors or having one of your senior managers work

in the investee company.

Both of these things would indicate that the investor has

significant influence, and the investment is therefore

categorized as an associate.

If that is the case, then the associate

must use the equity method to account for their investment.

What does this mean?

Well, on the balance sheet, it means that the investor

will report their share--

say, 28%-- of the net assets of the investee's business.

It would be a one-line item under assets

that must be fully described in the notes

of the financial statements.

On the income statement, it would

mean that the investor's share of the investor's profit

or loss is reported as one line item on the income statement

with the full details described in the notes

to the financial statements.

To summarize, profit or loss from the investments accounted

for under the equity method is the income or loss

from a joint venture or associate which

is reported on one line in the income statement,

but detailed in the notes.

Why is this required?

Because unlike normal revenues and expenses

from continuing operations, these investments

are only partially under the control of management,

and therefore, an important factor

for shareholders to know so that they can appropriately

assess the profitability of the business.

Four is income tax, also a required line item.

This is either the income tax expense,

because the company has revenues greater than expenses,

or an income tax refund, because the company has expenses that

are greater than the revenues.

Income tax expense reduces the profit,

and it's recorded as a debit.

However, income tax refunds are recorded as credits,

meaning that they reduce expenses and technically are

similar to revenues, since revenues

are recorded as credits.

Let's do an example, just to clarify this concept.

If there is income before taxes of $10,000,

then there is income tax expense of $2,000

if the company has a 20% marginal tax rate.

Profit would then be $8,000.

But if there were losses before income tax of $6,000,

then the company would get a tax refund of $1,200.

This would reduce the amount of the loss.

So in this case, the $1,200 refund would reduce the $6,000

loss before taxes to only $4,800 loss after taxes.

Income taxes must be disclosed for both continuing operations

as well as discontinued operations.

Why?

Because it is only partially under the control

of management, and therefore, an important factor for

stakeholders to know so they can appropriately

assess the profitability of the business.

Line item 5 is discontinued operations.

We're not going to say much about this

now, because there will be a separate video

about discontinued operations.

But just so you know the basics, this

is when the business sells a major line, segment,

or geographical area.

And they sell it as a whole unit.

This line item must include both the losses from the write-down

of the assets and liabilities being sold--

net of income tax refunds--

and the profit or loss from operating

this part of the business before it

was discontinued-- net of income taxes that are applicable,

either an expense if there's a profit or a refund

if there's a loss.

Why are discontinued operations reported as a separate line

item?

Because the information has no predictive value.

This line of business will not continue into the future.

For this reason, it must be listed as a separate line

item on the statement.

Item 6 is profit or loss from the total operations,

which are all the lines we have already covered and expenses.

What?

You didn't catch this?

To see this, let's go back to our listing of line items.

Notice in our listing, there is no line item for expenses,

such as the cost of goods sold, depreciation expense,

utilities expense, et cetera.

We have financing costs and income taxes, but nothing else.

However, since we have to have a line item called profit or loss

from total operation, there must be a line item

for expenses on the statement.

It's just not a required line item officially.

Line item 6 is therefore a total of all the prior line

items and expenses, which must also be deducted.

Item 7 is earnings per share.

We'll have a separate video on how to calculate

earnings per share.

But on the face of the statements,

there must be the following--

basic earnings per share from continuing operations

and for discontinued operations plus a total earnings per share

for both operations together.

In addition, on the face of the statement,

there must be diluted earnings per share

from continuing operations and diluted

earnings per share from discontinued operations,

and then diluted earnings per share from both operations

together.

We'll discuss earnings per share in a future video,

because earnings per share is considered

a very important ratio with regard

to assessing a business's performance.

Next is other comprehensive income.

This area is so complex that I defer coverage

to a different video.

But we can say right now that other comprehensive income are

the gains and losses due to changes in equity that are not