Acca financial Accounting (FA) Study Text ac ca (FA)

 

 

---

 

Introduction to financial reporting 

18

 

KAPLAN PUBLISHING

 

Statement of profit or loss and other comprehensive income for the 

year ended 30 June 20X7 

 $ 

Sales revenue 

120,000 

Cost of sales 

(72,500) 

 ––––––– 

Gross profit 

47,500 

Distribution costs 

(10,700) 

Administrative and selling expenses 

(15,650) 

 ––––––– 

Operating profit 

21,150 

Finance costs 

(600) 

 ––––––– 

Profit before tax 

20,550 

Income tax 

(600) 

 ––––––– 

Profit for the year 

19,950 

Other comprehensive income: 

 

Revaluation surplus in the year 

2,000 

 ––––––– 

Total comprehensive income for the year 

21,950 

 ––––––– 

Note that the statement classifies or groups expenses together based 

upon their function. Cost of sales, for example, may include the cost of raw 

materials to be converted into finished goods for sale. It may also include 

wages of employees directly involved in the conversion or production 

process. Distribution costs will include freight and delivery costs for 

finished goods, and may also include wages of employees involved in the 

distribution function. Administrative and selling costs will include the 

wages costs of those involved with that function, together with other 

related costs such as telephone and postage expenses. 

Items accounted for in arriving at the profit for the year are regarded as 

having been realised during the accounting period. 

In addition, for limited companies, there may be an additional section to 

the statement to recognise items of other comprehensive income. This will 

comprise of unrealised gains and losses during the accounting period and 

are separately disclosed in order to arrive at total comprehensive income 

for the year. The most common example of other comprehensive income 

relevant to the Financial Accounting syllabus is a revaluation surplus 

which arises when an entity decides to account for an increase in the 

value of land and buildings. This will be explained in further detail as you 

progress through your Financial Accounting studies. 

Both the profit for the year and any items of other comprehensive income 

are reflected in the statement of financial position and also the statement 

of changes in equity (see below) at the end of the accounting period. 

---