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ACCA Strategic Professional · Strategic Business Reporting (International) · Analysis and interpretation of financial and non-financial information and measurement of performance

Karta Group reports profit before tax of $120m, including a $30m gain on sale of a property which is one of several disposals made in each of the last three years as part of its normal portfolio management. Management presents 'Underlying profit' of $90m, excluding the gain and describing it as 'one-off'. Which assessment is most appropriate?

The adjustment is questionable because property gains have recurred each year as part of normal portfolio management, so calling them one-off is misleading. An APM should be neutral and consistently applied, and excluding only gains while retaining losses would bias the performance picture.

  1. AThe adjustment is acceptable because gains on disposal are always non-recurring
  2. BThe adjustment is questionable because the gain recurs, so describing it as one-off is misleading and the exclusion is not applied consistently with how losses would be treatedCorrect
  3. CThe adjustment is acceptable provided $90m is shown in bold type
  4. DThe adjustment is required by IFRS because gains must be excluded from operating profit

Explanation

Disposals have occurred in each of the last three years as part of normal activity, so labelling the gain as one-off is not faithful. APMs should be consistently defined and not selectively exclude items, which could bias the picture. IFRS does not require exclusion of such gains, and formatting is irrelevant.

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