ACCA Applied Knowledge · Financial Accounting

Statement of profit or loss and other comprehensive income: formula sheet

Full chapter guide

Key formulas

Gross profit: Gross profit = Revenue − Cost of sales; Cost of sales = opening inventory + purchases − closing inventory (plus any other costs of sale).
Profit from operations: Profit from operations = Gross profit + Other income − Distribution costs − Administrative expenses; Finance costs are not deducted here. Show them on a separate line below.
Profit before tax: Profit before tax = Profit from operations − Finance costs; Investment income, if any, is added at this point.
Profit for the year: Profit for the year = Profit before tax − Income tax expense; This is the bottom line of profit or loss.
Total comprehensive income: Total comprehensive income = Profit for the year + Other comprehensive income for the year; A revaluation surplus is added. A revaluation deficit charged to OCI is deducted.
Expenses by nature: Total expenses by nature = Changes in inventories + Raw materials used + Employee costs + Depreciation + Other expenses; No gross profit line is needed in this method.
Dividends: Dividends paid are not an expense; They appear in the statement of changes in equity, not in the SPLOCI.
Total comprehensive income: Total comprehensive income = Profit for the year + Other comprehensive income; If OCI is a loss, subtract it. Profit for the year is after tax.
Revaluation surplus on an asset: Revaluation surplus = Revalued amount − Carrying amount before revaluation; Applies when the revalued amount is higher. The surplus goes to OCI and then to the revaluation surplus in equity.
Closing revaluation surplus: Closing surplus = Opening surplus + Surplus arising in the year; Dividends and profit do not affect this reserve in simple FA questions.
Journal for an upward revaluation: Dr Non-current asset (cost or valuation) / Cr Revaluation surplus (OCI); Where accumulated depreciation exists, eliminate it first and restate the asset to the new value.
Cost of sales: Opening inventory + Purchases + Carriage inwards − Purchase returns − Closing inventory; Use net purchases after returns. Carriage inwards is part of the cost of purchases.
Gross profit: Revenue (net of sales returns) − Cost of sales; Carriage outwards is not deducted here.
Expense for the period (accrual): Cash paid − Opening accrual + Closing accrual; Also use: cash paid + closing accrual − opening accrual.
Expense for the period (prepayment): Cash paid + Opening prepayment − Closing prepayment; A closing prepayment reduces the expense.
Carriage treatment: Carriage inwards → cost of sales; Carriage outwards → distribution costs; Check the direction of the goods.
Discounts: Discounts allowed → expense; Discounts received → income; Trade discounts are deducted from the invoice price and are not recorded separately.
Carrying amount: Carrying amount = Cost − Accumulated depreciation; Use accumulated depreciation up to the disposal date, following the depreciation policy for the year of disposal.
Straight-line depreciation: Annual charge = (Cost − Residual value) ÷ Useful life; Gives the same charge every full year.
Reducing balance depreciation: Annual charge = Rate % × Carrying amount at start of year; The charge falls each year because the carrying amount falls.
Profit or loss on disposal: Profit or (loss) = Proceeds − Carrying amount; A positive answer is a profit. A negative answer is a loss. It goes in profit or loss, not in revenue.
Irrecoverable debt write-off: Dr Irrecoverable debts expense, Cr Receivables; Do this before calculating the allowance.
Debt recovered: Dr Cash, Cr Irrecoverable debts expense (or receivables, then cash); Reduces the net expense in profit or loss.
Required allowance: Required allowance = % × (Trade receivables − Irrecoverable debts written off); Apply a general percentage only to the balance that remains after write-offs. Specific doubtful debts are allowed for separately in full.
Charge for the year for allowance: Profit or loss effect = Required allowance − Existing allowance; Positive means an increase, which is an expense. Negative means a decrease, which is a credit.
Income tax charge: Tax charge = current year estimate + under provision − over provision; Shown in profit or loss between profit before tax and profit for the year.
Under provision: Under provision = tax actually settled − prior year estimate (when settled is higher); Increases the charge in the current year.
Over provision: Over provision = prior year estimate − tax actually settled (when estimate is higher); Reduces the charge in the current year.
Finance cost: Finance cost = loan × interest rate × fraction of year outstanding; Charge the full amount for the year. Accrue the unpaid part as a current liability.
Profit for the year: Profit before tax − income tax charge; Dividends are not deducted here.
Closing retained earnings: Opening retained earnings + profit for the year − dividends recognised in the year; Done in the statement of changes in equity. Deduct a dividend only if it was paid in the year, or declared on or before the reporting date. A final dividend declared after the year end is not a liability at the year end, so it is disclosed only and not deducted.
Closing balance of each column: Closing = Opening + Total comprehensive income items + Share issues − Dividends ± Transfers; Apply it column by column, not just to total equity.
Total comprehensive income: Total comprehensive income = Profit for the year + Other comprehensive income; Profit goes to retained earnings. OCI goes to its own reserve, such as revaluation surplus.
Share issue at a premium: Cash received = Number of shares × issue price; share capital = shares × nominal value; share premium = shares × (issue price − nominal value); The premium is never part of share capital.
Bonus issue: Bonus shares = existing shares × bonus ratio; debit reserves, credit share capital at nominal value; No cash. Total equity is unchanged.
Closing equity check: Closing equity = Net assets in the statement of financial position; Total closing equity must agree to total assets minus total liabilities.

Quick revision

Profit for the year plus other comprehensive income equals total comprehensive income.
Cost of sales = opening inventory + purchases − closing inventory, with carriage inwards added and returns deducted.
Gross profit = revenue − cost of sales.
Closing inventory is valued at the lower of cost and net realisable value.
Depreciation is an expense in profit or loss; the carrying amount is cost less accumulated depreciation.
Gain or loss on disposal = proceeds − carrying amount at the date of disposal.
Irrecoverable debts written off are an expense; a change in the allowance for receivables is also an expense or a reduction in expense.
Revaluation gains on property, plant and equipment go to other comprehensive income, not profit or loss.
Ordinary dividends are not an expense; they appear in the statement of changes in equity.
Income tax expense is in profit or loss, and any unpaid amount is a liability in the statement of financial position.
Finance costs are shown in profit or loss, normally below operating profit.
The statement of changes in equity shows opening balance, total comprehensive income, dividends, share issues and closing balance for each component of equity.

Common mistakes

Deducting dividends in the statement of profit or loss. Fix: Dividends are a distribution of profit and go in the statement of changes in equity. They are never an expense.
Including a revaluation surplus in profit for the year. Fix: Put the surplus in OCI. It increases total comprehensive income but not profit for the year.
Putting a revaluation gain into profit for the year. Fix: Remember that an unrealised revaluation gain on property, plant and equipment goes to OCI and the revaluation surplus, not profit or loss.
Calculating the surplus using original cost instead of carrying amount. Fix: Always compare the new valuation with cost less accumulated depreciation at the revaluation date.
Including carriage outwards in cost of sales. Fix: Ask which way the goods move. Inwards (from suppliers) goes in cost of sales. Outwards (to customers) is a distribution expense.
Subtracting opening inventory and adding closing inventory. Fix: Opening inventory was available to sell, so add it. Closing inventory is unsold, so deduct it.
Treating the whole allowance as the expense for the year. Fix: Always subtract the existing allowance from the required allowance. Only the difference goes to profit or loss.
Applying the allowance percentage to receivables before deducting irrecoverable debts. Fix: Write off the bad debt first. Then apply the percentage to the reduced balance.
Showing under or over provision as a restatement of last year's profit. Fix: It is a change in estimate. Adjust the current year's tax charge only.
Subtracting an under provision from the tax charge. Fix: Under means too little was charged before, so you charge more now: add it. Over provision is deducted.

Exam tips

Read whether the question wants profit for the year or total comprehensive income. The two differ by OCI.
In objective tests, ignore statement of financial position items and compute only the subtotal asked for.
For multiple response questions on IAS 1, remember that dividends are not an expense, and that a revaluation surplus is OCI. Check each option against that.
Learn the order of the lines. Section B questions often ask you to place figures into the right line of the template.
If a question says expenses are classified by nature, look for lines such as depreciation, employee costs and changes in inventories, and no gross profit line.
Look for the words revalued or revaluation. They signal OCI, not profit or loss.
Always work out carrying amount first. Most wrong answers use cost instead.
In multiple response questions, select only items that are genuine OCI. Dividends and share issues are not.