STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

The published statement of profit or loss and other comprehensive income does not have to detail every single overhead or expense incurred by the company – to do so would be to disclose important management information to competitors. Instead, the main items are summarised; however, IAS 1 requires that certain items must be detailed on the face of the statement, including:

·         revenue

·         finance costs

·         share of the profit or loss of associates

·         tax expense

·         other comprehensive income for the year (eg the revaluation of property)

Further detail may be needed to give information relevant to an understanding of financial performance.

Note that items of income and expense are not to be presented as extraordinary items, either on the face of the income statement or in the notes. When items are material, their nature and amount is to be disclosed separately.

·         The statement of profit or loss and other comprehensive income shows the:

·         profit or loss

·         total other comprehensive income

·         comprehensive income for the year, ie the total of profit or loss and other comprehensive income (which is taken to the statement of changes in equity)

Expenses in the statement of profit or loss and other comprehensive income must be analysed either by nature (raw materials, employee costs, depreciation, etc) or by function (cost of sales, distribution costs, administrative expenses, etc) – depending on which provides the more reliable and relevant information. The analysis by nature is often appropriate for manufacturing companies, while the analysis by function is commonly used by trading companies. The example statement of comprehensive income of ABC PLC (with sample figures) shows an analysis by function.

Cost of sales
Expenditure classified under cost of sales will typically include direct costs, overheads,

depreciation and amortisation expense and adjustments. The items that might appear under

each heading are:

·         Direct costs: direct materials purchased; direct labour; other external charges that comprise production costs from external sources, e.g. hire charges and subcontracting costs.

·         Overheads: variable production overheads; fixed production overheads.

·         Depreciation and amortisation: depreciation of non-current assets used in production and impairment expense.

·         Adjustments: capitalisation of own work as a non-current asset. Any amount of the costs listed above that have been incurred in the construction of non-current assets for retention by the company will not appear as an expense in the statement of comprehensive income: it will be capitalised. Any amount capitalised in this way would be treated for accounting purposes as a non-current asset and depreciated.

Distribution costs

These are costs incurred after the production of the finished article and up to and including

transfer of the goods to the customer. Expenditure classified under this heading will

typically include the following:

·         warehousing costs associated with the operation of the premises, e.g. rent, rates, insurance, utilities, depreciation, repairs and maintenance and wage costs, e.g. gross wages and pension contributions of warehouse staff;

·         promotion costs, e.g. advertising, trade shows;

·         selling costs, e.g. salaries, commissions and pension contributions of sales staff; costs associated with the premises, e.g. rent, rates; cash discounts on sales; travelling and entertainment;

·         transport costs, e.g. gross wages and pension contributions of transport staff, vehicle costs, e.g. running costs, maintenance and depreciation.

Other operating income or expense

Under this heading a company discloses material income or expenses derived from ordinary activities of the business that have not been included elsewhere. If the amounts are not material, they would not be separately disclosed but included within the other captions. Items classified under these headings may typically include the following:

·         income derived from intangible assets, e.g. royalties, commissions;

·         income derived from third-party use of property, plant and equipment that is surplus to the current productive needs of the company;

·         income received from employees, e.g. canteen, recreation fees; payments for rights to use intangible assets not directly related to operations, e.g. licences.

Finance costs

In order to arrive at the profit for the period interest received or paid and investment income

is disclosed under the Finance cost heading.