AS-5 – Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies :

The standard ensures uniform classification and disclosure of certain items so that profit and loss statement may be prepared on uniform basis and thereby facilitating inter-period and inter-firm comparisons. The standard recommends that all items of income and expense which are recognised in a period should be included in the determination of net profit or loss for the period. While arriving at the net profit, extraordinary items and the effects of changes in accounting estimates should also be incorporated. The profit and loss statement should disclose clearly the profit or loss from ordinary activities and extraordinary activities. Extraordinary items should be disclosed in the statement of profit and loss in a manner that its impact on current profit or loss can be perceived. However, such amounts are part of the net profit or loss for the period. When the items of income and expense within profit or loss from ordinary activities are of such size, nature or the incidence of their disclosure is relevant to explain the performance of the enterprise for the period, the nature and amount of such items should be disclosed separately.

The standard requires that the nature and amount of prior period items should be separately disclosed in the statement of profit and loss in a manner that their impact on the current profit or loss can be perceived. The effect of a change in an accounting estimate should be included in the determination of net profit or loss in (a) in the period of the change, if the change affects the period only or (b) the period of the change and future periods, if the change affects both. A change in an accounting policy should be made only if the adoption of a different accounting policy is required by statute or for compliance with an accounting standard or if it is considered that the change would result in a more appropriate presentation of the financial statements of the enterprise. A more appropriate presentation of events or transactions in the financial statements occurs when the new accounting policy results in more relevant or reliable information about the financial positions, performance or cash flows of the enterprise. Any change in an accounting policy which has a material effect should be disclosed in the financial statements.