Regulatory status at a glance: Ind AS 118 corresponds to IFRS 18 (issued by the IASB, April 2024). It has been issued by ICAI’s Accounting Standards Board only as an Exposure Draft; NFRA recommended it to the Central Government for notification in January 2026, endorsing full convergence with IFRS 18. Formal MCA notification is awaited. Recommended effective date: annual periods beginning on or after 1 April 2027, with early adoption from 1 January 2027 for calendar-year reporters. Confirm the current notification status before relying on any date for a specific filing.

When a new accounting standard changes the presentation of the Statement of Profit and Loss, the first question companies ask is: “What will our new P&L look like?”

It is a natural question — and, in our experience advising companies through earlier Ind AS transitions, not the right starting point. Ind AS 118 introduces a genuinely new architecture for the P&L: five defined categories of income and expense, at least two new mandatory subtotals, and a formal disclosure regime for the numbers management already uses in investor decks and press releases. Getting the format right is the easy part. Getting the classification behind it right — and being able to defend it — is where implementations succeed or stall.

This is the first in a three-part series on Ind AS 118 implementation. This post covers what the standard actually requires. The next two cover where classification gets genuinely hard (foreign exchange, derivatives, and Management-Defined Performance Measures), and how to build a process that survives more than one reporting cycle.

The Five Categories

Every item of income and expense in the Statement of Profit and Loss must be classified into one of five categories. Operating is the default: an item goes into Investing, Financing, Income Taxes or Discontinued Operations only if it meets that category’s specific criteria; everything else is Operating.

●        Operating — the residual/default category: income and expenses from the entity’s main business activities, and everything not specifically allocated elsewhere. Examples: revenue, cost of goods sold, employee benefits, most "Other Income" and "Other Expenses."

●        Investing — returns from assets that generate a return individually and largely independently of the entity’s other resources. Examples: income from investment property, share of profit of associates/JVs, gains/losses on investments, interest income on surplus cash equivalents.

●        Financing — income/expenses on liabilities involving only the raising of finance ("Type 1"), and the effect of interest-rate/discounting changes on other liabilities ("Type 2", e.g. lease liabilities, certain provisions). Examples: interest expense on borrowings and debentures, unwinding of discount on lease liabilities.

●        Income Taxes — tax expense/income recognised under Ind AS 12: current tax and deferred tax.

●        Discontinued Operations — presented separately per Ind AS 105: the results of a component classified as held for sale or discontinued.

Two New Mandatory Subtotals

Beyond the five categories, Ind AS 118 mandates at least two new subtotals on the face of the P&L, in addition to the familiar "Profit before tax" and "Profit for the period":

●        Operating profit or loss — comprises all items classified in the Operating category. For the first time, every Ind AS financial statement will show a standardised, comparable "operating profit" line — today, "operating profit" is a voluntary, inconsistently-defined MPM for most Indian companies.

●        Profit or loss before financing and income tax — comprises Operating profit or loss, plus all items classified in the Investing category. This isolates the return on the business and its investments from the effect of how it is financed and taxed — useful for comparing entities with different capital structures.

Why "Mapping the Chart of Accounts" Isn’t Enough

At first glance, implementation can look like a simple exercise: map the existing Chart of Accounts to the five categories. That approach has an obvious weakness — general ledger account names do not always explain the underlying economics of a transaction.

Consider an account titled "Interest Income." Can it automatically be assigned to one category? Not necessarily. The analysis requires considering the asset generating the income, its nature and purpose, the entity’s main business activities, and the specific classification requirements that apply — interest on surplus cash equivalents will typically be Investing, while interest income that is part of a financing business’s main operating activity would be Operating.

The same issue recurs with foreign exchange gains and losses, investment gains, interest expenses, derivative gains and losses, and other unusual or complex transactions — the subject of Part 2 of this series.

The implementation process should not begin and end with GL Account → Ind AS 118 Category. A more robust approach requires Transaction → Facts → Technical Analysis → Classification → Review → Presentation → Disclosure. We return to this framework in Part 3.

Regulatory Timeline

The path to a notified, effective Ind AS 118 runs through the following milestones:

●        April 2024 — IFRS 18 issued by the IASB.

●        2025 — ICAI’s Accounting Standards Board issues the Exposure Draft of Ind AS 118.

●        January 2026 — NFRA recommends full convergence with IFRS 18 to the Central Government.

●        Awaited — formal MCA notification (status: pending as of this article).

●        1 April 2027 — the recommended mandatory effective date (early adoption permitted from 1 January 2027 for calendar-year reporters, e.g. Indian subsidiaries of foreign parents).

What to Do Now

●        Do not wait for notification to start. The classification framework, categories and subtotal structure are already stable enough in the Exposure Draft to begin identifying judgemental transactions today.

●        Start with an inventory, not a mapping template. List the transaction types that will need genuine analysis (FX, derivatives, unusual income/expense items) before building any GL-to-category mapping.

●        Read Part 2 next. It covers the two areas that consistently prove hardest in practice — foreign exchange/derivatives classification and Management-Defined Performance Measures.