Preview on Conceptual Framework for Financial Reporting 2010
The elements directly related to the measurement of
performance in the income statement are income and expenses.
4.24 Profit is frequently used as a measure of performance
or as the basis for other measures, such as return on investment or earnings
per share. The elements directly related to the measurement of profit are
income and expenses. The recognition and measurement of income and expenses,
and hence profit, depends in part on the concepts of capital and capital maintenance
used by the entity in preparing its financial statements. These concepts are
discussed in paragraphs 4.57 -4.65.
4.27 Income and expenses may be presented in the income
statement in different ways so as to provide information that is relevant for
economic decision making. For example, it is common practice to distinguish
between those items of income and expenses that arise in the course of the
ordinary activities of the entity and those that do not. This distinction is
made on the basis that the source of an item is relevant in evaluating the
ability of the entity to generate cash and cash equivalents in the future; for
example, incidental activities such as the disposal of a long term investment
are unlikely to recur on a regular basis. When distinguishing between items in
this way consideration needs to be given to the nature of the entity and its
operations. Items that arise from the ordinary activities of one entity may be
unusual in respect of another.
4.28 Distinguishing between items of income and expense and
combining them in different ways also permits several measures of entity
performance to be displayed. These have differing degrees of inclusiveness. For
example, the income statement could display gross margin, profit or loss from
ordinary activities before taxation, profit or loss from ordinary activities
after taxation, and profit or loss.
For more on Income and Expenses check Conceptual FW 2010
4.29-1.35 – Page 32.
