Financial statements · Topic 3 of 7
Company statement of profit or loss and OCI
A limited company’s statement of profit or loss and other comprehensive income in the IAS 1 layout, explained line by line.
ACCA exams this helps with: FA Financial Accounting FR Financial Reporting See the ACCA map
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A limited company’s version of the income statement. It shows the same things: sales, costs and profit for the year. It follows a set layout required by IAS 1, splits profit into stages (gross profit, operating profit, profit before tax, profit for the year), and adds a second part for other comprehensive income.
Example. A bike company sells £4.82 million of bikes. After the cost of the bikes, running costs, interest and tax, its profit for the year is £480,000.
Key words
- Revenue
- The money a business earns from selling goods or services in its normal trading. Also called sales or turnover.Example: A café that sells £20,000 of coffee in a year has revenue of £20,000.
- Gross profit
- Sales minus the cost of the goods sold, before any other expenses are taken off.Example: Sales £20,000 − cost of sales £8,500 = gross profit £11,500.
- Other comprehensive income
- Gains and losses that are recorded in the accounts but are not included in profit for the year, such as a gain from revaluing a building. They are shown in a separate section under profit.Example: A company’s building is revalued up by £150,000. The £150,000 is other comprehensive income, not profit.
- Total comprehensive income
- Profit for the year plus other comprehensive income. It is the total change in equity from the company’s performance in the year, before dividends and share issues.Example: Profit £480,000 + revaluation gain £150,000 = total comprehensive income £630,000.
- Dividend
- A payment of profit from a company to its shareholders. It reduces retained earnings. It is not an expense.Example: A company with £480,000 of profit pays dividends of £150,000 and keeps £330,000.
The statement, explained
Marsh Lane Cycles Ltd 1
Statement of Profit or Loss and Other Comprehensive Income
for the year ended 31 December 2025
| 2025 £000 | 2024 £000 | |
| Revenue 2 | 4,820 | 4,350 |
| Cost of sales 3 | (2,990) | (2,650) |
| Gross profit 4 | 1,830 | 1,700 |
| Distribution costs 5 | (520) | (480) |
| Administrative expenses 6 | (610) | (590) |
| Operating profit 7 | 700 | 630 |
| Finance costs 8 | (60) | (70) |
| Profit before tax 9 | 640 | 560 |
| Income tax expense 10 | (160) | (140) |
| Profit for the year 11 | 480 | 420 |
| Other comprehensive income 12 | ||
| Gain on revaluation of property | 150 | – |
| Total comprehensive income for the year 13 | 630 | 420 |
What each numbered line means
- Heading. The company’s name (“Ltd” means a private limited company), the statement’s full name, and the period. “£000” means every figure is in thousands of pounds, so 4,820 means £4,820,000.
- Revenue. Income from selling bikes and repairs in the year, recognised under IFRS 15, excluding VAT.
- Cost of sales. The direct cost of the goods sold: opening inventory + purchases − closing inventory, plus the depreciation of equipment used to make or prepare the goods.
- Gross profit. Revenue minus cost of sales. £1,830 ÷ £4,820 = a gross margin of 38.0%, down from 39.1% last year.
- Distribution costs. Costs of getting goods to customers: delivery, warehouse staff and selling costs.
- Administrative expenses. Costs of running the company: office staff, directors, the audit fee, and amortisation of software.
- Operating profit. Profit from the company’s normal trading, before financing and tax. It is used to compare companies funded in different ways.
- Finance costs. Interest on the bank loan, including interest owed at the year end but not yet paid.
- Profit before tax. Operating profit minus finance costs.
- Income tax expense. Corporation tax for the year (current tax, £140) plus the increase in deferred tax (£20). £160 ÷ £640 = 25% of profit before tax.
- Profit for the year. The profit that belongs to the shareholders. It is added to retained earnings. Dividends paid do not appear in this statement.
- Other comprehensive income (OCI). Gains and losses that are not part of profit for the year. Here the property was revalued up by £150. This goes to the revaluation surplus in equity, not to retained earnings.
- Total comprehensive income. Profit for the year plus other comprehensive income: £480 + £150 = £630.
How to read it
- Revenue growth: (£4,820 − £4,350) ÷ £4,350 = 10.8%.
- Gross margin fell from 39.1% to 38.0%. Cost of sales rose by 12.8%, faster than revenue. Ask whether purchase prices rose or selling prices were cut.
- Operating margin stayed about the same: £700 ÷ £4,820 = 14.5% (last year 14.5%). The company controlled its running costs well.
- Interest cover: operating profit £700 ÷ finance costs £60 = 11.7 times. The company can easily afford its interest.
- Tax rate: £160 ÷ £640 = 25%, in line with the UK main rate of corporation tax.
- Separate the OCI. The £150 revaluation gain makes total comprehensive income look bigger, but it is not trading profit and no cash was received.
Watch it explained
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How to make it yourself
All figures are in £000.
Trial balance at 31 December 2025
| Account (£000) | Dr | Cr |
|---|---|---|
| Property, plant and equipment: carrying amount at 1 January 2025 | 2,900 | |
| Property, plant and equipment: additions in the year | 300 | |
| Intangible assets: carrying amount at 1 January 2025 | 240 | |
| Inventory at 1 January 2025 | 540 | |
| Purchases | 2,860 | |
| Revenue | 4,820 | |
| Distribution costs | 520 | |
| Administrative expenses | 560 | |
| Finance costs (interest paid) | 30 | |
| Trade receivables | 720 | |
| Cash and cash equivalents | 290 | |
| Trade and other payables | 540 | |
| Bank loan | 1,000 | |
| Deferred tax at 1 January 2025 | 100 | |
| Share capital (£1 shares) | 1,000 | |
| Retained earnings at 1 January 2025 | 1,650 | |
| Dividends paid | 150 | |
| Totals | 9,110 | 9,110 |
Year-end adjustments
- Closing inventory at 31 December 2025: £610,000.
- Depreciation for the year: £200,000, charged to cost of sales.
- Amortisation of intangible assets: £20,000, charged to administrative expenses.
- The property was revalued upwards by £150,000 at the year end.
- The audit fee of £30,000 has not been paid (an accrual in administrative expenses).
- Loan interest of £30,000 for the second half of the year is owed (an accrual).
- Current tax for the year is estimated at £140,000. Deferred tax should be increased to £120,000.
- £100,000 of the bank loan is repayable within 12 months.
- For simplicity, ignore deferred tax on the revaluation.
Steps
- Heading: company name, “Statement of Profit or Loss and Other Comprehensive Income”, “for the year ended 31 December 2025”, and “£000”.
- Revenue: £4,820 from the trial balance.
- Cost of sales: opening inventory 540 + purchases 2,860 − closing inventory 610 + depreciation 200 = 2,990.
- Gross profit: 4,820 − 2,990 = 1,830.
- Distribution costs: 520, copied as it is.
- Administrative expenses: 560 + amortisation 20 + audit fee accrued 30 = 610.
- Operating profit: 1,830 − 520 − 610 = 700.
- Finance costs: interest paid 30 + interest accrued 30 = 60.
- Profit before tax: 700 − 60 = 640.
- Income tax expense: current tax 140 + increase in deferred tax (120 − 100 = 20) = 160.
- Profit for the year: 640 − 160 = 480.
- Other comprehensive income: the revaluation gain of 150. Total comprehensive income = 480 + 150 = 630.
- Leave out the dividends paid (150). They are a payment to shareholders, not an expense, and they appear in the statement of changes in equity.
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