Accounting Business Reporting for Decision Making

238 Accounting: Business Reporting for Decision Making

In the statement presented the entity has grouped income into sales-related and other income. The

entity’s other income could consist of items such as dividends received, interest revenue and royalties.

Entities may choose to list other income items individually. Expenses have been grouped into six categ-

ories: cost of sales, warehousing, distribution, selling and marketing, administration and finance. Entities

can elect to aggregate or disaggregate expenses as there are no fixed formatting requirements.

ILLUSTRATIVE EXAMPLE 6.6

Statement of profit or loss format for an entity not required to comply

with accounting standards

Coconut Plantations Pty Ltd

Statement of profit or loss for 4 months ended 31 December 2015

Income

Sales

Cost of sales

$ 500 000

275 000

Gross profit 225 000

Other income 5 000

Operating expenses

Warehouse

Distribution

Finance

Selling and marketing

Administration

$32 000

10 000

5 000

3 000

30 000 80 000

Profit before tax

Income tax expense

150 000

45 000

Profit after tax $ 105 000

The cost of sales for a retailer represents the opening inventory value, plus purchases, less closing inven-

tory value. For a manufacturing operation, such as Coconut Plantations Pty Ltd, the cost of sales represents

the opening value of finished goods, plus the cost of goods manufactured (which is the cost of materials,

labour and overhead used in manufacturing the goods), less the closing value of finished goods.

Typical items included in ‘warehouse’ expenses could be warehouse rent, wages and salaries of ware-

house staff, insurance for stored inventory, depreciation of warehouse plant and equipment, and utilities

(e.g. electricity, telephone, gas) consumed by the warehouse. Distribution expenses could include courier

fees, fleet management costs, and postage and handling. Selling and marketing expenses could include

advertising, sales staff salaries and promotional events. Items that comprise administrative expenses

could include general staff costs and head office expenses such as stationery, utilities, rates, depreciation

of office furniture and equipment, and general insurance. Finance costs could include interest on borrow-

ings, bank fees and lease charges.

VALUE TO BUSINESS

•   The format of the statement of profit or loss differs, depending on whether:

• the statement is being prepared for internal or external reporting purposes


• the preparing entity is required to prepare general purpose financial statements in compliance with
  accounting standards.
  • An accounting standard exists that prescribes required disclosures, either in the statement of profit
  or loss or in the notes, of certain income and expense items.