Ind AS 118 – Detailed Guide with Old vs New Format Comparison

The introduction of Indian Accounting Standard (Ind AS) 118 – Presentation and Disclosure in Financial Statements brings a major transformation in the presentation of financial performance.

Effective from 1 April 2027, this standard replaces Ind AS 1 – Presentation of Financial Statements and restructures how companies present the Statement of Profit & Loss.

This article explains:

• Conceptual changes
• Structural classification
• Mandatory subtotals
• Management Performance Measures (MPMs)
• Detailed comparison table
• Old vs New Profit & Loss format
• Analytical and practical impact

Why Ind AS 118 Was Introduced

Under Ind AS 1:

• Operating profit was not strictly defined
• Subtotals were flexible
• Companies could design their own structure
• EBITDA and adjusted metrics lacked strict regulation
• Comparability across companies was limited
• Scope for classification-based earnings presentation existed

Ind AS 118 removes subjectivity and standardizes presentation to enhance:

• Transparency
• Consistency
• Analytical reliability
• Investor confidence

Core Structural Change – Three Mandatory Categories

Under Ind AS 118, all income and expenses must be classified into:

1️⃣ Operating Category

Core business income and expenses.

2️⃣ Investing Category

Returns generated from investments.

3️⃣ Financing Category

Cost of raising capital.

This categorization is now rule-based, not management-driven.

Three Mandatory Categories Explained

A. Operating Category

Includes income and expenses arising from core business activities.

Examples:

Revenue from operations Cost of materials Employee benefits Administrative expenses Depreciation related to operations Selling & distribution expenses

This reflects the core business performance and is the primary performance indicator.

B. Investing Category

Includes returns generated from investments and non-core assets.

Examples:

Interest income on investments Dividend income Gain/loss on sale of investments Fair value changes on investment assets

This separates operational efficiency from investment returns.

C. Financing Category

Includes cost of raising capital.

Examples:

Interest on borrowings Lease liability interest Other financing charges

This separates capital structure decisions from business performance.

Mandatory Subtotals under Ind AS 118

The following subtotals must be presented:

• Operating Profit
• Profit Before Financing & Tax
• Profit Before Tax

Earlier, these were not structurally mandated under Ind AS 1.

These subtotals now create a performance ladder structure, improving clarity for analysts and lenders.

Management Performance Measures (MPMs)

If a company presents:

EBITDA Adjusted EBITDA Core Profit Normalised Earnings

It must now:

Reconcile to audited Ind AS numbers Explain the calculation methodology Disclose tax impact Disclose non-controlling interest impact (if applicable) Maintain consistency year-on-year

Example:

'EBITDA = Operating Profit + Depreciation + Amortisation'

Reconciliation disclosure becomes mandatory.

This reduces aggressive performance adjustments and selective exclusions.

Additional Important Change – Disclosure Discipline

Ind AS 118 also enhances:

• Transparency around unusual income/expenses
• Clearer disaggregation of material line items
• Better note disclosures supporting subtotals
• Reduced presentation flexibility

This increases audit scrutiny and governance strength.

Comparison Table – Ind AS 1 vs Ind AS 118

OLD FORMAT – Under Ind AS 1 (Illustrative)

(Illustrative – Traditional Format under Ind AS 1)

Key Observations (Old Format)

• No clear separation between operating and investing income
• Finance costs mixed within expenses
• Operating profit not mandatory
• Custom subtotals possible
• Limited structured analytical clarity

NEW FORMAT – Under Ind AS 118 (Illustrative)

(Illustrative – Structured Format under Ind AS 118)

Clear Structural Flow Under Ind AS 118

Revenue (Operating) (-) Operating Expenses = Operating Profit

• Investing Income = Profit Before Financing & Tax

(-) Financing Costs = Profit Before Tax

(-) Tax = Profit After Tax

• OCI = Total Comprehensive Income

Major Conceptual Differences Explained

1️⃣ Operating Profit – Now Defined

Earlier: Operating profit could vary depending on classification.

Now: It is structured, standardized, and less subjective.

2️⃣ Investing & Financing Clearly Segregated

Interest income, dividend income, and finance costs are no longer freely placed.

They must follow defined categorization rules.

3️⃣ Management Performance Measures (MPMs)

If EBITDA or adjusted profit is shown:

• Reconciliation to audited numbers mandatory
• Tax impact disclosure required
• Consistency required

Now requires structured disclosure within financial statements.

Illustrative Statement of Profit & Loss – Comparative Format

(₹ Crores Example – Numbers Aligned Properly)

✔ Final profit remains the same ✔ Presentation structure changes significantly

Analytical Impact at Large Scale

For a ₹ 3,000 Cr company:

Transition Preparation Checklist

Companies should:

• Reclassify chart of accounts
• Update ERP reporting templates
• Identify MPM disclosures
• Train finance teams
• Assess ratio impact
• Prepare comparative restatement
• Update accounting policy disclosures
• Align internal MIS reporting with new structure

Final Conclusion

Ind AS 118 is not a minor revision.

It transforms performance presentation from flexible to structured.

Operating Profit becomes standardized. Comparability improves. Creative reporting reduces. Financial transparency increases. Governance strengthens.

For professionals in:

• Financial Reporting
• Banking & Credit
• Valuation
• Audit

Early preparation is essential before 1 April 2027.