Statement of Profit or Loss and Other Comprehensive Income

Objective A & B: Preparing the SPL

The statement of profit or loss follows a structured format:

Statement of Profit or Loss for the year ended [date]

Revenue X
Cost of sales (X)
---
Gross profit X
Other income X
Distribution costs (X)
Administrative expenses (X)
---
Operating profit X
Finance costs (X)
---
Profit before tax X
Income tax expense (X)
---
Profit for the year X

Other comprehensive income:
Revaluation gains X
---
Total comprehensive income for the year X
===

Cost of sales = Opening inventory + Purchases − Closing inventory + Carriage inwards

Gross profit = Revenue − Cost of sales

Operating profit = Gross profit + Other income − Distribution costs − Administrative expenses

Profit before tax = Operating profit − Finance costs

Profit for the year = Profit before tax − Income tax expense

Objective C: Income Tax Expense

The income tax expense in the SPL includes:

1. The current year's tax charge (estimated tax on this year's profits)
2. Any under-provision from the prior year (if last year's estimate was too low, the extra is added)
3. Any over-provision from the prior year (if last year's estimate was too high, the excess is deducted)

Tax expense = Current year charge + Under-provision − Over-provision

Example: Current year tax charge is £50,000. Last year's tax was estimated at £45,000 but the actual liability was £47,000 (under-provision of £2,000).

Tax expense = £50,000 + £2,000 = £52,000