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Statement of profit or loss and other comprehensive income (IAS 1)

Edexcel IAL Accounting · WAC12 Corporate and Management Accounting

Unit 2 opens with the published accounts of a limited company. The first statement shows how the company performed: its revenue, its expenses grouped by function, and the profit left for shareholders after finance costs and tax.

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The IAS 1 format

IAS 1 Presentation of Financial Statements sets the layout used in WAC12. Expenses are grouped by function:

Revenue less Cost of sales = Gross profit
add Other income (rent received, for example)
less Distribution costs (selling and delivery) and Administrative expenses (running the office and the company)
= Profit from operations
less Finance costs (debenture and loan interest)
= Profit before tax, less Tax, = Profit for the year.

Use these IAS 1 headings rather than sole-trader wording such as 'net profit'.

Expense	Where it goes
Purchases, inventory change, factory wages, factory depreciation	Cost of sales
Sales staff wages and commission, advertising, delivery vehicle costs and depreciation, discount allowed	Distribution costs
Office salaries, directors' fees, auditors' fees, office depreciation, irrecoverable debts, stationery	Administrative expenses
Debenture interest, loan interest, overdraft interest	Finance costs

Adjustments still apply

The trial balance figures are adjusted before they go in:

Accruals are added and prepayments deducted from expenses.
Debenture interest is charged for the full year even if only half has been paid: interest = nominal value x rate.
Depreciation is calculated and placed in the function that uses the asset (delivery vans in distribution, office computers in administration).
Show workings (W1, W2...) for cost of sales and each expense heading: method marks are given for them.

Other comprehensive income

Some gains are not realised and do not pass through profit. The main one at this level is an upward revaluation of property. It is shown below the profit for the year:

Profit for the year + Other comprehensive income (revaluation gain) = Total comprehensive income.

The revaluation gain goes to the revaluation reserve, not to retained earnings.

A full example

Harbour Lights plc, year ended 31 March:

	£
Revenue	4,800,000
Cost of sales	(2,560,000)
Gross profit	2,240,000
Other income (rent)	24,000
Distribution costs	(455,000)
Administrative expenses	(412,000)
Profit from operations	1,397,000
Finance costs	(80,000)
Profit before tax	1,317,000
Tax	(260,000)
Profit for the year	1,057,000
Other comprehensive income: gain on property revaluation	150,000
Total comprehensive income for the year	1,207,000

Statement of profit or loss and other comprehensive income

Worked example

Harbour Lights plc: opening inventory £320,000, purchases £2,650,000, closing inventory £410,000. Sales staff wages £310,000; delivery vans cost £425,000, depreciated at 20% on cost; advertising £64,000 of which £4,000 is prepaid. Find cost of sales and distribution costs.

W1 Cost of sales = 320,000 + 2,650,000 - 410,000 = £2,560,000
Van depreciation = 20% x 425,000 = £85,000
Advertising = 64,000 - 4,000 prepaid = £60,000
W2 Distribution costs = 310,000 + 85,000 + 60,000 = £455,000

Answer: Cost of sales £2,560,000; distribution costs £455,000

Key idea: IAS 1 layout: revenue, cost of sales, gross profit, other income, distribution costs, administrative expenses, profit from operations, finance costs, profit before tax, tax, profit for the year, then other comprehensive income.

Check yourself

A company has revenue £2,600,000, opening inventory £180,000, purchases £1,540,000 and closing inventory £220,000. Calculate the gross profit.
Show answer
£1100000. Cost of sales = 180,000 + 1,540,000 - 220,000 = £1,500,000; gross profit = 2,600,000 - 1,500,000 = £1,100,000.
Distribution costs in the trial balance: sales staff wages £210,000, advertising £48,000 (£6,000 of it is prepaid), delivery van running costs £37,000 (£3,000 owing at the year end). Calculate total distribution costs.
Show answer
£292000. 210,000 + (48,000 - 6,000) + (37,000 + 3,000) = £292,000.
A company has £1,500,000 of 6% debentures in issue all year. The trial balance shows debenture interest paid of £45,000. What figure appears for finance costs?
Show answer
£90000. Finance costs = 6% x 1,500,000 = £90,000 for the full year; £45,000 is accrued.
Profit from operations is £930,000, finance costs are £70,000 and tax is £215,000. Calculate the profit for the year.
Show answer
£645000. 930,000 - 70,000 = £860,000 profit before tax; 860,000 - 215,000 = £645,000.
Profit for the year is £645,000. Land was revalued from £1,200,000 to £1,450,000 during the year. Calculate total comprehensive income.
Show answer
£895000. Revaluation gain = £250,000 (other comprehensive income); total = 645,000 + 250,000 = £895,000.
Under which heading should directors' fees appear in the IAS 1 statement?
- Cost of sales
- Distribution costs
- Finance costs
- Administrative expenses
Show answer
Administrative expenses. Directors run the whole company, so their fees are an administrative expense.
Where should depreciation of delivery vehicles be shown?
- Administrative expenses
- Distribution costs
- Cost of sales
- Other comprehensive income
Show answer
Distribution costs. Delivery vehicles are used to get goods to customers, so their depreciation is a distribution cost.
Where does a gain on the upward revaluation of a building first appear?
- Other comprehensive income, below profit for the year
- Revenue
- Other income
- Finance costs
Show answer
Other comprehensive income, below profit for the year. It is an unrealised gain, so it goes to other comprehensive income and then to the revaluation reserve.

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Last updated 8 November 2026. Spotted a mistake? Tell us.