Business Finance · Construction and features of company accounts and reports

Statement of Profit or Loss and Other Comprehensive Income

Updated 11 October 2026 · Fact-checked

The statement of profit or loss and other comprehensive income shows a company's income and expenses for a period. It starts with revenue, deducts costs to reach profit, then adds other comprehensive income to give total comprehensive income. Revenue is recognised under the IFRS 15 five-step model, when control of goods or services passes to the customer.

Understand Statement of Profit or Loss and Comprehensive Income

A company's accounts answer one basic question: how well did the business do over the year? The statement of profit or loss answers it. It lists income earned and expenses incurred in a period, and the difference is profit. It covers a period of time, unlike the statement of financial position, which is a snapshot at one date.

The statement is built on the accruals principle. Income is recorded when it is earned and expenses when they are incurred, not when cash moves. A sale on credit in March is March revenue even if the customer pays in May. Costs are matched to the revenue they helped to earn in the same period.

The layout moves down through several profit measures. Revenue less cost of sales gives gross profit. Less distribution costs and administrative expenses gives operating profit. Add finance income and deduct finance costs to get profit before tax. Deduct tax to get profit for the year. Each level tells a reader something different: gross profit shows trading margin, operating profit shows core performance, and profit after tax is what belongs to shareholders (after any non-controlling interest in group accounts).

Other comprehensive income (OCI) holds gains and losses that accounting standards say must bypass profit or loss. Common examples are revaluation gains on property, plant and equipment, remeasurement of defined benefit pension plans, and gains or losses on equity investments elected to be measured at fair value through OCI. Some OCI items may later be reclassified to profit or loss (for example, exchange differences on translating a foreign operation). Others are never reclassified (for example, revaluation surplus and pension remeasurements). Profit for the year plus OCI gives total comprehensive income.

Revenue is recognised under IFRS 15, which Ind AS 115 mirrors. The core idea: recognise revenue when you transfer promised goods or services to the customer, at the amount you expect to be entitled to. Control, not legal title or cash receipt, is the test. Entities may present one statement or two (a separate statement of profit or loss followed by a statement of comprehensive income). Ind AS 1 requires expenses to be analysed either by nature or by function.

Key rules to remember

Gross profit: Gross profit = Revenue − Cost of sales; Cost of sales = opening inventory + purchases − closing inventory, for a trading business.
Operating profit: Operating profit = Gross profit − Distribution costs − Administrative expenses (± other operating income/expenses); Before finance costs and tax.
Profit before tax: Profit before tax = Operating profit + Finance income − Finance costs; Interest on debt goes in finance costs, not operating expenses.
Profit for the year: Profit for the year = Profit before tax − Income tax expense; Tax expense includes current and deferred tax.
Total comprehensive income: Total comprehensive income = Profit for the year + Other comprehensive income; OCI is shown net of tax or with tax shown separately.
IFRS 15 five-step model: 1 Identify the contract; 2 Identify performance obligations; 3 Determine the transaction price; 4 Allocate the price to obligations; 5 Recognise revenue as each obligation is satisfied; Revenue is recognised at a point in time or over time, depending on when control transfers.
Allocation by stand-alone selling price: Allocated price = Total transaction price × (Stand-alone price of item ÷ Sum of stand-alone prices); Used in step 4 when a contract has several obligations.
Straight-line depreciation: Annual depreciation = (Cost − Residual value) ÷ Useful life; A common adjustment that affects expenses in the statement.

How to solve Statement of Profit or Loss and Comprehensive Income questions

Use this method for a preparation question or a question that asks you to explain the items.

1Read the question and note the period, the reporting basis and whether the layout is by function or by nature.
2List all adjustments given: accruals, prepayments, depreciation, inventory change, bad debts, tax and any revaluation.
3Work out revenue first. Apply the five-step model if the contract has several obligations, a delivery period or discounts.
4Calculate cost of sales and gross profit, then expenses line by line, including the effect of each adjustment.
5Move down to operating profit, finance costs, profit before tax, tax and profit for the year.
6Identify any OCI items and place them below profit. Add them to reach total comprehensive income.
7Check that each adjustment appears once and that the total ties to any given figure, such as retained earnings movement.
8Add a short note if the question asks for comment, linking each profit measure to what it tells a user.

Quickest way: Top-down ladder with an adjustment tick list

When to use it: Use this for MCQs and for short written parts where you need the layout fast.

Write the ladder: Revenue, Cost of sales, Gross profit, Expenses, Operating profit, Finance costs, Profit before tax, Tax, Profit for the year, OCI, Total comprehensive income.
Tick each adjustment as you place it so nothing is missed or doubled.
For revenue, ask only: when does control pass to the customer? Point in time or over time?
Ask of each gain or loss: does a standard send it to OCI? If yes, keep it out of profit.

Common mistakes in Statement of Profit or Loss and Comprehensive Income

Putting revaluation gains or pension remeasurements into profit for the year.
Students treat every gain as income.
Fix: Learn the standard OCI list. Show these items below profit for the year and add them only in total comprehensive income.
Recognising revenue when cash is received or when the contract is signed.
Cash and legal paperwork feel like proof of a sale.
Fix: Use the control test. Recognise revenue when the performance obligation is satisfied, whatever the cash timing.
Treating a bundle of goods and services as one obligation and recognising all revenue at once.
Students skip step 2 of the model.
Fix: Identify distinct goods and services, allocate the price by stand-alone selling prices, and recognise each part when it is delivered.
Including interest expense in operating expenses.
Interest is a cost, so it seems to belong with other costs.
Fix: Show finance costs after operating profit. This keeps operating profit independent of how the business is financed.
Forgetting the closing inventory adjustment or depreciation in cost lines.
Students work from the trial balance and miss the notes.
Fix: Use an adjustment tick list and check every note is applied once.
Mixing up profit for the year with total comprehensive income.
Both appear as bottom-line totals.
Fix: Profit for the year excludes OCI. Total comprehensive income includes it. Label each clearly.

Worked examples

Example 1

A company has these figures for the year (₹ lakh): revenue 5,000; opening inventory 400; purchases 3,000; closing inventory 600; distribution costs 300; administrative expenses 450; finance costs 100; tax rate 25% of profit before tax. It also has a revaluation gain on property of ₹200 lakh (no tax effect assumed). Prepare the statement down to total comprehensive income.

Show the solution

Cost of sales = 400 + 3,000 − 600 = 2,800.
Gross profit = 5,000 − 2,800 = 2,200.
Operating profit = 2,200 − 300 − 450 = 1,450.
Profit before tax = 1,450 − 100 = 1,350.
Tax = 25% × 1,350 = 337.5.
Profit for the year = 1,350 − 337.5 = 1,012.5.
OCI = 200 (revaluation gain, never reclassified to profit).
Total comprehensive income = 1,012.5 + 200 = 1,212.5.

Answer: Profit for the year is ₹1,012.5 lakh and total comprehensive income is ₹1,212.5 lakh.

Example 2

On 1 January a company sells a machine and one year of servicing to a customer for ₹1,20,000 in total. The stand-alone selling price of the machine is ₹1,00,000 and of one year's servicing is ₹50,000. The machine is delivered on 1 January and servicing is provided evenly over the year. How much revenue is recognised by 31 March?

Show the solution

Step 1: there is a contract. Step 2: two distinct performance obligations, machine and servicing.
Step 3: transaction price = ₹1,20,000.
Sum of stand-alone prices = 1,00,000 + 50,000 = 1,50,000.
Step 4: machine share = 1,20,000 × 1,00,000 ÷ 1,50,000 = ₹80,000. Servicing share = 1,20,000 × 50,000 ÷ 1,50,000 = ₹40,000.
Step 5: machine control passes on delivery, so ₹80,000 is recognised on 1 January.
Servicing is satisfied over time. Three of twelve months = 3 ÷ 12 × 40,000 = ₹10,000.
Total revenue by 31 March = 80,000 + 10,000 = ₹90,000.

Answer: Revenue recognised by 31 March is ₹90,000.

Exam tips

Memorise the ladder of profit measures and the order of the items. Many written marks come from correct layout.
Know a short list of OCI items and whether each can be reclassified. MCQs often test this directly.
For revenue questions, name the five steps in your answer and show the allocation working. Method marks are available even if the arithmetic slips.
State your assumptions, such as ignoring deferred tax or using a straight-line pattern, in one line.
If asked to comment, link each profit measure to a user need: investors, lenders or management.

Practice questions from Construction and features of company accounts and reports

Statement of Profit or Loss and Comprehensive Income in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Statement of Profit or Loss and Comprehensive Income: frequently asked questions

What is other comprehensive income with examples?

OCI is income and expense that standards require to be kept out of profit or loss. Examples are property revaluation gains, remeasurement of defined benefit pension plans, and fair value changes on equity investments elected to go through OCI. Some items, like foreign operation translation differences, may be reclassified to profit later.

What are the five steps of IFRS 15 revenue recognition?

Identify the contract, identify the performance obligations, determine the transaction price, allocate the price to the obligations, and recognise revenue when each obligation is satisfied. The last step depends on when control passes to the customer.

What is the difference between profit for the year and total comprehensive income?

Profit for the year is the result after expenses and tax. Total comprehensive income is profit for the year plus other comprehensive income. The second figure shows all changes in equity from non-owner transactions.

Do I show expenses by nature or by function?

Either is allowed. By function groups costs as cost of sales, distribution and administration. By nature groups them as items like employee costs and depreciation. Follow the layout the question uses, and be consistent.