Operating, Investing or Financing Under IFRS 18: 40 Income Statement Lines Classified, With the Paragraph and the Usual Wrong Answer

A gain on selling an old factory is operating income under IFRS 18, although the sale proceeds are an investing cash flow. At least one Arabic explainer online puts the gain in investing. Paragraph B60(a) says otherwise: a disposal gain goes to the category the asset's income used, and a factory's income was operating.

From annual periods beginning on or after 1 January 2027, every line in profit or loss sits in one of five categories: operating, investing, financing, income taxes and discontinued operations (paragraph 47). Net profit does not move (bar the C7 associates election); operating profit does. Below, 40 lines are placed for an ordinary company and, where different, a bank, insurer or investor, with the deciding paragraph (IFRS 18's unless named) and the usual wrong answer, as at 3 November 2026.

How IFRS 18 decides a category: operating is whatever is left

IAS 12 income tax goes to the income taxes category (67), discontinued operations to theirs (68; see Discontinued Operations Under ASC 205-20 and IFRS 5). For everything else, ask three questions.

Is the source an investing asset? Paragraph 53 names associates, joint ventures and unconsolidated subsidiaries; cash and cash equivalents; and assets earning a return individually and largely independently of the entity's other resources, typically investments and investment property (B46). Their income, remeasurements, disposal gains and transaction costs are investing (54); plant and trade receivables are not (B48).

Is the source a liability? On one that only raised finance, such as a loan, bond or sukuk, everything is financing (59(a), 60). On any other, such as a lease, an end-of-service obligation or a provision, only identified interest and interest-rate effects are financing (59(b), 61); the rest is operating (B55).

Is investing or lending a main business activity (49)? Then a bank, insurer, fund or property company moves some lines into operating (55 to 58, 65), but equity-accounted results stay investing (55(a)). Whatever is left is operating, volatile and non-recurring items included (52, B42).

The 40-line table: ordinary company, lender, investor

"Same" means a main business activity changes nothing. "Policy choice" is a lender's election for funding and cash unrelated to customer lending, kept consistent (56(b), 65(a)).

Item	Ordinary company	Bank, insurer or investor, where different	Paragraph	Usual wrong answer
Gain on selling a factory or machine	Operating	Same	B60(a)	Investing
Goodwill impairment	Operating	Same	52, B49(d), B83	Investing
Credit losses on trade receivables	Operating	Same	B77(a)	Finance costs
Credit losses on deposits and debt investments	Investing	As the asset's income	B77(b)	Operating
Bargain purchase gain; contingent consideration remeasured	Operating	Same	B49(f), B55(c)	Investing or financing
Wage grant, such as HRDF (Hadaf) support	Operating	Same	52; IAS 20.29 (one firm's published view)	Financing
Capitalised borrowing costs, later expensed	Operating	Same	52, B49(c) (one firm's published view)	Financing
End-of-service benefits: service cost	Operating	Same	B55(b)	Financing
End-of-service benefits: net interest	Financing	Same, banks included	B54(d), 65(b)	Operating
Lease interest	Financing	Same, banks included	B54(c), 65(b)	Operating
Discount unwinding and rate changes on provisions	Financing	Same	B54(e)	Operating
Identified interest, including a murabaha mark-up, on supplier credit	Financing	Same	61, B54(a)	Cost of sales
Financing component of a contract liability	Financing	Same	B54(b)	Revenue
Interest on bank loans and bonds	Financing	Bank: operating if it funds lending, else policy choice	60, 65(a)	Netted with interest income
Murabaha or tawarruq facility cost	Financing	As above	59(a), 60, 65(a)	Operating
Profit paid on sukuk issued	Financing	As above	B51(a), 60	Operating
Equity-accounted associates and joint ventures	Investing	Same	53(a), 55(a)	Operating, if "integral"
Dividends and fair value changes on equity investments	Investing	Investor or insurer: operating	53(c), 58	Other income
Interest on cash and short-term murabaha deposits	Investing	Financial investor: operating; bank: operating or policy choice	53(b), 56, 57	Finance costs, netted
Profit on term murabaha deposits, bonds and sukuk held	Investing	Operating where investing is a main business	53(c), B46(a), 58	Finance income
Investment property: rent, fair value changes, depreciation	Investing	Property company: operating	B46(b), B47, 58	Revenue
Gain on selling investment property	Investing	Property company: operating	B60(b)	Other income
Costs of buying or selling an investment	Investing	Investor: operating	54(c)	Administrative expenses
Gain on selling a subsidiary	Operating, unless it held only investing assets	Property company: operating	B63, B64	Investing
Remeasuring an associate on gaining control	Investing	Same	B60(c)	Operating
Dividends from subsidiaries, parent's separate statements	Investing	Pure holding company: operating	53(a), 55(b)	Always investing
Bank lending and deposit interest	Not applicable	Bank: operating	65(a), B48(c)	Financing, for deposits
Insurance finance income and expenses	Not applicable	Insurer: operating	64(b)	Financing
FX (foreign exchange) on a trade receivable or payable	Operating	Same	B65, B66(a)	Finance costs
FX on a bank loan	Financing	Bank: operating if the loan funds lending	B66(b)	Operating
FX on supplier credit carrying interest	One category by judgement, never split	Same	B67	Split between two
FX too costly to trace	Operating, item by item	Same	B68	Financing
FX on an intragroup loan eliminated on consolidation	Policy choice: operating, or the loan's pre-elimination category	Same	52, B65, B68	Financing
FX on income tax balances	Income taxes	Same	67; IAS 12.78	Operating
Designated hedging instrument	Category of the hedged item	Same	B70, B71	Financing
Undesignated derivative managing an identified risk	As a hedge; operating if grossing up or undue effort	Same	B72, B74	Investing
Undesignated forward on a net FX liability	Financing	Bank: may be operating	B72	Split
Derivative managing no identified risk	Operating; financing if tied to a finance-only transaction	Bank: may be operating (B59)	B73	Investing
Net monetary position (hyperinflation)	Operating, unless shown with related items	Same	B69	Financing
Zakat	SOCPA text: Zakat and income taxes category; IFRS as issued: open	Same	67 as endorsed; 52	One answer for both texts

A royalty measured on production is not a tax on taxable profit (IAS 12.2), so it stays operating.

What the IFRS Interpretations Committee has settled, and what is still open

Question	Status	Answer
FX on an eliminated intragroup loan	Final, April 2026	Policy choice: operating, or the loan's category
Forward on a net FX liability	Final, April 2026	Financing
Pure holding parent, separate statements	Final, April 2026	Income from subsidiaries at cost is operating
Expenses-by-nature note	Final, April 2026	Covers every function line
Cash income of a financial investor that also lends	Tentative, June 2026	Operating
A lender's policy choice in a group	Tentative, June 2026	Group-wide; inseparable funding operating
Manufacturer that leases its products	Tentative, June 2026	Likely lends as a main business
Assets earning an independent return (53(c))	Tentative, September 2026	Investments and investment property qualify; sales receivables do not
Zakat and other charges outside IAS 12	IASB to propose an amendment (July 2026)	Exposure draft expected in the fourth quarter of 2026, unpublished

Four other June items concern performance measures and expense presentation. June comments closed on 9 September 2026 and none was finalised in September; September's item is open to 30 November 2026. No November Update had appeared by 3 November 2026.

The Saudi lines: zakat, end-of-service benefits, murabaha and sukuk

SOCPA endorsed IFRS 18 on 26 December 2024 and renamed the fourth category the "Zakat and income taxes category", holding zakat under its revised Zakat Standard beside IAS 12 tax (47(d), 67; endorsement document, item 42); the second subtotal reads "profit or loss before financing and Zakat and income taxes" (69(b)). So a SOCPA reporter's zakat sits outside operating profit by text; a Gulf company on IFRS as issued waits for the IASB; see Accounting for Zakat in Saudi Financial Statements.

Under IAS 19, end-of-service benefits split: service cost operating, net interest financing (End-of-Service Benefits in Saudi Arabia). The IASB's IFRS 18 never names murabaha or sukuk; general paragraphs place them. SOCPA's paragraphs 76A and 85A add disclosure, not a category: conventional interest income and expense apart from finance lease, murabaha and time-value amounts, "no matter how small".

Foreign exchange and derivatives: follow the item, never split, never gross up

FX goes where the income and expenses of the item that produced it go (B65). On a payable on extended credit, which carries a purchase and interest, the entity judges which the difference belongs to and puts all of it there (B67); if tracing involves undue cost or effort, it is operating (B68). With the riyal pegged to the dollar, Saudi books feel it on euro, sterling and yuan balances. Translating foreign operations is separate: Foreign Currency Translation vs Remeasurement.

Derivatives follow the risk they manage (B70 to B73; hedge accounting is in Fair Value Hedge vs Cash Flow Hedge). A forward covering net currency risk on revenue and on interest cannot show a bigger gain in one category and a bigger loss in another; it goes to operating (B74, B75). Re-presenting its first half of 2025, RAK Ceramics, a UAE early adopter, moved an AED 5.4 million FX gain and an AED 6.0 million derivative loss into operating, and investment-property income into investing.

A worked foreign exchange example: a euro payable and a euro loan

A Saudi distributor reporting in riyals holds four euro positions, and the euro rises by SAR 0.20 (illustrative). Under IAS 1 it might show one net loss of SAR 400 thousand.

Position	Euro, thousands	SAR thousands	Category	Paragraph
Trade payable, 90-day terms	2,000	(400)	Operating	B65
Term deposit	3,000	600	Investing	53(c), B65
Bank loan	5,000	(1,000)	Financing	B66(b)
Undesignated forward on the loan net of the deposit	2,000	400	Financing	B72
Total		(400)

Operating profit loses 400, profit or loss before financing and Zakat and income taxes gains a net 200, financing carries a net 600 loss, and net profit is unchanged. The forward is financing because it manages a net liability exposure; hedging the deposit and loan gross would straddle two categories, which B74 forbids, and send it to operating. On 18-month terms with identified interest, the payable's 400 would go wholly to one category (B67).

Six mistakes people make

Putting the factory-sale gain in investing (B60(a)). Treating operating profit as core profit, when restructuring, litigation and goodwill impairment (Impairment Under US GAAP vs IFRS) stay in it (52, B42).

Keeping "integral" associates in operating: equity-accounted results (The Equity Method Under ASC 323 and IAS 28) are always investing (55(a), B38). Presenting "net finance costs": deposit interest is investing, loan interest financing, and netting works only within one category (44, B28).

Booking all FX in finance costs, or splitting one difference across two categories (B65, B67). Assuming a bank never shows profit before financing and income taxes: it drops that subtotal only by choosing operating for funding unrelated to lending (73).

Why the cash flow statement does not follow these categories

IAS 7 keeps its activity definitions. The indirect method starts from operating profit (IAS 7.18(b)); without a specified main business activity, interest paid is financing and interest and dividends received investing (IAS 7.34A). The factory gain is operating while its proceeds are investing cash (IAS 7.16(b)), and zakat paid stays an operating cash flow under SOCPA's IAS 7.35. More in The Cash Flow Statement Under IFRS 18.

Where to practise this

In SOCPA Financial Accounting this is group 1/7 of the February 2026 guidance framework ("classifies and aggregates the accounts in the financial statements", Application) and subtopic 1/1/10, presentation of financial statements, in main topic 1 (5 to 15%). SOCPA has not announced which cycle first examines IFRS 18 (Is IFRS 18 on Your Exam?); ACCA examines it in FR and SBR from September 2025 and DipIFR from December 2025.

Practise in Prepito's Financial Accounting course, part of the SOCPA Fellowship programme, and see the categories on one company in IFRS 18 vs IAS 1: One Saudi Income Statement Restated Line by Line, Where Operating Profit Moves From 230 to 186 and Net Profit Stays at 180.

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Sources: IFRS 18, IAS 7, IAS 12, IAS 20, agenda decisions (intragroup FX, derivatives, parents), IFRIC Updates (March, June, September) and the taxes project; SOCPA's endorsement document and guidance framework; ACCA (FR and SBR, DipIFR); RAK Ceramics. Tentative decisions and the zakat amendment can change after each meeting.