Example IFRS 18 Statement of Profit or Loss, where the entity’s main business activity is asset investment
IFRS 18 Presentation and Disclosure in Financial Statements is a new financial statement presentation standard that replaces IAS 1 Presentation of Financial Statements. It is effective for annual periods beginning on or after 1 January 2027 and will result in entities having to classify income and expenses in the statement of profit or loss in one of five categories, with special rules for the investing and financing category of entities with specified main business activities.
Our previous article illustrates what a Statement of Profit or Loss could look like for a typical retail, wholesale, manufacturer, or service business with no specified main business activities. This month, we show an example Statement of Profit or Loss for an entity that invests in assets as a main business activity.
Why start your IFRS 18 implementation now?
Extensive work may be required to adapt your chart of accounts to appropriately tag income and expenses to the five categories. In addition, comparatives must be restated when IFRS 18 is adopted, so entities must be prepared as early as 1 January 2026 for the new presentation requirements in the Statement of Profit or Loss.
Types of entities investing in assets
Examples of entities that might invest in assets as a main business activity include:
- Investment entities as defined by AASB 10 Consolidated Financial Statements
- Investment property companies
- Insurers.
This may involve investing in a wide variety of assets, including shares, debt instruments, investment property, etc.
Examples
For entities investing in assets as a main business activity, the example Statements of Profit or Loss below show how and why common income and expense items will be classified when IFRS 18 becomes effective.
The classification of income and expenses set out below shows how these amounts will generally be classified applying the requirements of IFRS 18; however, this guidance should be taken as broad guidance only. The classification of particular income and expenses will depend on facts and circumstances.
Example 1 – Invest in investment properties as a main business activity
Entity A holds investment properties as a main business activity. It does not have any other main business activities.
It rents out the properties under operating leases (IFRS 16 Leases).
A loan facility was entered into to finance part of the purchase price of the properties and this is considered a liability from a transaction that involves only the raising of finance (‘pure financing liability’).
Entity A is not providing financing to customers as a main business activity.
|
Line item |
Classification |
Why |
|
Rental income from investment property |
Operating category |
The entity invests in investment property as a main business activity. Investment properties are other assets that generate a return individually and largely independently of the entity’s other resources. IFRS 18.53(c), IFRS 18.54(a), IFRS 18.58 |
|
Fair value gains and losses on investment property that is measured using the fair value model |
Operating category |
The entity invests in investment property as a main business activity. Investment properties are other assets that generate a return individually and largely independently of the entity’s other resources. IFRS 18.53(c), IFRS 18.54(a), IFRS 18.58 |
|
Direct operating expenses relating to investment properties (e.g. repairs and maintenance, cleaning, security, valuations costs, etc.) |
Operating category |
The entity invests in investment property as a main business activity. Investment properties are other assets that generate a return individually and largely independently of the entity’s other resources. IFRS 18.53(c), IFRS 18.54(a), IFRS 18.58 |
|
Depreciation of investment property that is measured using the cost model |
Operating category |
The entity invests in these assets as a main business activity. Investment properties are other assets that generate a return individually and largely independently of the entity’s other resources. IFRS 18.53(c), IFRS 18.54(b), IFRS 18.58 |
|
Depreciation of property, plant and equipment |
Operating category |
Expenses from assets that do not generate a return individually and largely independently of the entity’s other resources. IFRS 18.B48(a) |
|
Impairment or reversals of investment property measured using the cost model (IAS 36 Impairment of Assets) |
Operating category |
The entity invests in these assets as a main business activity. Investment properties are other assets that generate a return individually and largely independently of the entity’s other resources. IFRS 18.53(c), IFRS 18.54(b), IFRS 18.58 |
|
Gain or loss on disposal of investment property |
Operating category |
The entity invests in these assets as a main business activity. Investment properties are other assets that generate a return individually and largely independently of the entity’s other resources. IFRS 18.53(c), IFRS 18.54(c), IFRS 18.58 |
|
Expected credit losses on trade receivables |
Operating category |
Expenses from assets that do not generate a return individually and largely independently of the entity’s other resources. IFRS 18.B48 |
|
Operating profit |
Mandatory sub-total |
Sum of the operating category |
|
Interest income on cash and equivalents earned from the business bank accounts |
Investing category |
The entity does not invest in financial assets as a main business activity. IFRS 18.56 |
|
Profit before financing and income taxes |
Mandatory subtotal |
Sum of the operating and investing categories |
|
Interest expense on the loan facility |
Financing category |
Interest expense relating to a loan transaction that involves only the raising of finance. IFRS 18.B52(a) |
|
Profit before income taxes |
Additional subtotal |
|
|
Income tax expense (current and deferred) |
Income taxes category |
Income and expenses within the scope of IAS 12 |
|
Profit |
Mandatory total |
Sum of all categories |
Example 2 - Invest in shares as a main business activity
Entity B is a managed investment scheme.
It holds a portfolio of shares as a main business activity. It does not have any other main business activities.
The shares comprise investments in subsidiaries, associates and joint ventures, as well as passive shareholdings in smaller companies. At initial recognition, Entity B has irrevocably designated some investments to be measured at fair value through comprehensive income, rather than profit or loss.
Entity B is partially funded by unitholders’ equity and also has a loan facility to take advantage of new investment opportunities. The loan is considered a liability from a transaction that involves only the raising of finance (‘pure financing liability’).
Entity B is not providing financing to customers as a main business activity.
|
Line item |
Classification |
Why |
|
Dividends and distributions from equity investments |
Operating category |
The entity invests in these assets as a main business activity. Equity investments are other assets that generate a return individually and largely independently of the entity’s other resources. IFRS 18.53(c), IFRS 18.54(b), IFRS 18.58 |
|
Fair value gains and losses on equity instruments that are accounted for under IFRS 9 Financial Instruments and measured at fair value through profit or loss Note: Fair value movements for investments irrevocably designated as being measured at fair value through comprehensive income are not recognised in profit or loss, and therefore are not categorised into one of the five profit or loss categories. |
Operating category |
The entity invests in these assets as a main business activity. Equity investments are other assets that generate a return individually and largely independently of the entity’s other resources. IFRS 18.53(c), IFRS 18.54(b), IFRS 18.58 |
|
Fair value gains and losses on investments in associates and joint ventures where the entity has elected to apply the venture capital, mutual fund, unit trust option to measure these at fair value through profit or loss under IAS 28.18 |
Operating category |
The entity invests in these assets as a main business activity and does not account for them using the equity method. IFRS 18.54(a), IFRS 18.55(b), IFRS 18.B43(b) |
|
Fair value gains and losses on investments in subsidiaries measured at fair value through profit or loss (assuming Entity B meets the definition of an investment entity) |
Operating category |
The entity invests in these assets as a main business activity. IFRS 18.54(a), IFRS 18.55(b), IFRS 18.B44(b) |
|
Interest income on cash and equivalents earned from the business bank accounts |
Operating category |
The entity invests in financial assets as a main business activity. IFRS 18.56(a) |
|
Operating profit |
Mandatory sub-total |
Sum of the operating category |
|
Income from equity accounted associate ABC and joint venture DEF (Entity B has not elected to apply the venture capital, mutual fund, unit trust option to measure these at fair value through profit or loss under IAS 28.18) |
Investing category |
Despite investing in associates as a main business activity, income from investments accounted for using the equity method is always shown in the investing category. IFRS 18.54(a), IFRS 18.55(a), IFRS 18.B43(a) |
|
Profit before financing and income taxes |
Mandatory subtotal |
Sum of the operating and investing categories |
|
Interest expense on the loan facility |
Financing category |
Interest expense relating to a loan transaction that involves only the raising of finance. IFRS 18.B52(a) |
|
Profit before income taxes |
Additional subtotal |
|
|
Income tax expense (current and deferred) |
Income taxes category |
Income and expenses within the scope of IAS 12 |
|
Profit |
Mandatory total |
Sum of all categories |
Example 3 – Provides mortgage funding to customers
Entity C is a mortgage fund that provides home loans to customers, secured by mortgages over the respective properties. Investing in mortgage financial assets is therefore a main business activity.
Entity C is partially funded by unitholders’ equity and also has a loan facility, which it uses to provide financing to customers as a main business activity.
The loan is considered a liability from a transaction that involves only the raising of finance (‘pure financing liability’).
|
Line item |
Classification |
Why |
|
Interest income on financial assets (mortgage loans) measured at amortised cost |
Operating category |
The entity invests in these assets as a main business activity. Mortgage loans are other assets that generate a return individually and largely independently of the entity’s other resources. IFRS 18.53(c), IFRS 18.54(a), IFRS 18.58 |
|
Interest income on cash and equivalents held in surplus funds |
Operating category |
The entity invests in financial assets as a main business activity (e.g. debt instruments). IFRS 18.56(a) |
|
Interest expense on the loan facility |
Operating category |
The loans arise from transactions that involve only the raising of finance, and the interest expense arises from the subsequent measurement of the liability. The entity provides financing to customers as a main business activity and it concludes that the income and expenses are classified in the operating category. IFRS 18.65(a)(i), IFRS 18.B52(a) |
|
Net interest margin |
Additional subtotal |
|
|
Expected credit losses on mortgage loans receivable (IFRS 9) |
Operating category |
Financial assets such as mortgage loans generate a return individually and largely independently of the entity’s other resources. The entity invests in mortgage loans as a main business activity; therefore, income and expenses are classified in the operating category. IFRS 18.53(c), IFRS 18.54(b), IFRS 18.58 |
|
Operating profit |
Mandatory sub-total |
Sum of the operating category |
|
Note: Entity C has no investing income or expenses |
|
|
|
Profit before financing and income taxes |
Mandatory subtotal |
Sum of the operating and investing categories |
|
Note: Entity C has no financing expenses |
|
|
|
Profit before tax |
Additional subtotal |
|
|
Income tax expense (current and deferred) |
Income taxes category |
Income and expenses within the scope of IAS 12 |
|
Profit |
Mandatory total |
Sum of all categories |
More information
To find out more and start preparing for IFRS 18, check out our new IFRS 18 web page, publication, and webinar.
Need help
Our recent IFRS 18 articles demonstrate the complexity of applying IFRS 18 in practice. Your chart of accounts will need to change in many ways to appropriately tag income and expenses to the five categories, and transition dates start from 1 January 2026.
It’s crucial that entities start preparing now. Reach out to our team for help with understanding the latest requirements in IFRS 18.