Once notified, Ind AS 118 will change how Indian Ind AS reporters arrange the face of the statement of profit and loss. The standard focuses on classification of income and expense, mandatory subtotals, and clearer labelling — not on changing the measurement of those items.
Five categories, two defined subtotals
Every item of income and expense is classified into operating, investing, financing, income taxes or discontinued operations. From that structure, two subtotals become compulsory:
- Operating profit — a residual of items that are not investing, financing, tax or discontinued.
- Profit before financing and income taxes — the bridge between operating results and financing / tax lines.
Entities whose main business activity is investing in assets or providing finance to customers follow different classification pathways for specified items, so a written, defensible “main business activity” policy is essential.
What moves on the face of P and L
- Other income ceases to be a single catch-all caption and is allocated across the categories that reflect the nature of each item.
- Finance costs leave the undifferentiated “total expenses” block and sit below the second defined subtotal.
- Share of profit or loss of associates and joint ventures generally sits outside operating profit.
- Foreign exchange differences follow the classification of the item that gave rise to them.
- Unusual income and expenses require dedicated disclosure, including the line in which each item is presented.
Profit before tax and profit after tax remain unchanged in amount; only the path to those totals is redesigned.
Cash flows and expense analysis
Under the converged approach, the indirect method of presenting operating cash flows starts from operating profit, improving linkage between P and L and cash flow. Companies may present expenses by nature or by function; function presentation typically requires a concise nature analysis so users can still see the cost structure.
What finance teams should build now
| Workstream | Outcome |
|---|---|
| Chart of accounts tagging | Each GL line maps to a category and subtotal |
| Policy memo | Main business activity and unusual-item criteria |
| Management reporting bridge | Internal KPIs reconciled to IFRS / Ind AS subtotals |
| Audit trail | Evidence pack for classification judgements |
Illustrative summary of presentation effects expected under Ind AS 118 / IFRS 18 principles. Confirm against the final notified Ind AS text and your industry facts.