WEEK 2

Statement of Comprehensive
Income (SOCI) and Statement of
Financial Position (SOFP)

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The main elements of financial reports
The principal financial statements of a
business are:

the Statement of Comprehensive

Income
the Statement of Financial Position

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Purpose of financial statements
Both the SOCI and the SOFP are summaries
of accumulated data.
For example, the SOCI shows a figure for
revenue earned from selling goods to
customers. This is the total amount of revenue
earned from all the individual sales made during
the period.
One of the jobs of an accountant is to devise
methods of recording such individual
transactions, so as to produce summarised
financial statements from them.

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 Provide information about the financial
position, performance and changes in
financial position of an entity.
 This is useful to a wide range of users in
making economic decisions.

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Statement of Comprehensive Income
(a.k.a. Income Statement/ Profit & loss Statement)
A report that shows the income of the
business and the expenses involved in
earning income for a specific period, such
as 12 months.
Purpose: Outlines the results of the
trading process over a period of time.

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 A SOCI is a record of income generated
and expenditure incurred over a given
period.
 The statement shows whether the
business has had more revenue than
expenditure (a profit) or vice versa
(loss).

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Format of a simple SOCI is shown below:
Mario’s Super Store
Statement of Comprehensive Income
for the year ended 30 June 2017
$ $
Income
Sale of Stock 140 000
Less Expenses
Purchases of Stock 90 000
Wages paid to employees 21 000
Electricity 1 400
Cleaning Costs 1 600
Rent Paid 4 000 118 000
Profit for year 22 000

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Income (Revenue) is defined as amounts
earned from the sales of goods and
services for cash or credit.
 Sales income

 Services income

 Interest received

 Commission received

 Dividends received

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Expenses can be defined as costs
involved in earning income.
 Purchases of stock

 Electricity

 Cleaning

 Bank charges

Can you think of additional expenses?

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The SOCI of a company is slightly
different - for example:

Show both the gross profit and the net

profit.
Gross profit = Sales revenue minus cost
of goods sold.
Net profit/ loss = the profit after taking
into account all other income and all other
expenses for the period.

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EXAMPLE!
Mario’s Super Store
Statement of Comprehensive Income for the year ended….
Income $2,000
Less: Cost of goods sold
Opening stock $100
Purchases* $500
(minus) Closing stock ($400) ($200)
Gross profit $1,800
Plus: Other income $400
Less: Other expense ($600)
Net profit $1,600
* Purchases = Purchases of stock + Carriage inwards + Import duty

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The statement of comprehensive income can be
expressed in equation form as:


Profit = Income – Expenses
If income is less than the expenses then a loss
occurs.
 Profit is added to owner’s equity.

 Loss is deducted from owner’s equity.

 Why? The owner is entitled to all profits made by the

business.

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BRAIN BREAKS

Question 1
Classify the following items as either income or
expenses:
(a) sales; (b) repairs and maintenance; (c)
commission received; (d) wages; (e) interest
paid; (f) fees received; (g) advertising expense;
(h) rent received; (i) interest received; (j) power
expense; (k) rent paid; (l) accounting fees paid.

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Question 2
Prepare a Statement of Comprehensive
Income for the year ended 30 June 2017 from
the following information of M Mathew,
Engineering firm.

Sales, $430,000; Purchases, $173,000; Import

duty, $3,000; Carriage inwards, $10,000;
Opening stock, $120,000; Closing stock,
$70,000.

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Question 3
Prepare a SOCI for the year ended 30 June
2017 from the following information of G
Glove, Gardener:

Cash at bank, $5,000; gardening fees

(revenue), $25, 000; debtor—TJ Co, $6,000;
petrol and oil used, $750; interest received,
$250; mowers, $1,500; repairs to mowers,
$400; advertisement paid, $200; wages,
$3,450.

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Question 4
Prepare a SOCI for the year ended 30 June 2017 from
the following information of
P Ricey, retailer:

Debtor—T Ace, $10,000; purchases, $120,000; cash

sales, $85,000; electricity, $1,200; telephone expense,
$1,500; rent paid, $15,000; wages, $22,000; motor
vehicle expenses, $1,750; furniture and
fittings, $35,000; credit sales, $116,000.

Note: there was no stock on hand at 1 July 2016 and all

stock purchased during the year has been sold.

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Statement of Financial Position
(a.k.a Balance Sheet)
It is a snapshot of the financial position
of the business at a particular moment.
Reports the financial position of an
entity as at a particular date, usually the
end of the financial year.
The financial position of an entity is
shown by its assets, liabilities, and
owner’s equity.

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Assets
An asset is something valuable which a
business owns or can use. The International
Accounting Standards Board (IASB) defines
an asset in its document, the Conceptual
Framework for Financial Reporting 2010, as
follows:
'An asset is a resource controlled by an
entity as a result of past events and from
which future economic benefits are
expected to flow to the entity.'

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Assets
Two categories of asset:
Current assets – assets that are either cash,
or expected to be converted to cash, or
otherwise used up, within a year.
Non-current assets – assets that are
expected to provide benefits to the business
beyond a period of a year.

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Liabilities
A liability is something which is owed to
somebody else. 'Liabilities' is the accounting
term for the debts of a business. The IASB's
Conceptual Framework for Financial Reporting
2010 defines a liability as follows.
'A liability is a present obligation of the
entity arising from past events, the
settlement of which is expected to result in
an outflow from the entity of resources
embodying economic benefits.

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Liabilities
Two categories of liabilities:
Current liabilities – debts due to be paid within

twelve months of the reporting date.

Non-current liabilities – debts due to be paid

after twelve months from the reporting date.

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Owner’s equity
The amounts invested in a business by the
owner are amounts that the business owes to
the owner. This is a special kind of liability,
called owner’s equity. In a limited liability
company, equity usually takes the form of
shares. The IASB's Conceptual Framework for
Financial Reporting 2010 defines equity as
follows.
'Equity is the residual interest in the assets
of the entity after deducting all its
liabilities.'

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Example 1
Damien’s Discount Store
Statement of financial position as at 30 June 2011
Assets $ Liabilities $ $

Petty Cash 50 Creditors 11 000

Cash on Hand 150 Mortgage Loan on Building 220 000

Cash At Bank 1300 Loan from Statewide Bank 23 000 254 000

Building 331 500

Shop Fittings 13 700

Equipment 43 400 Owner’s Equity

Furniture 21 900 Capital - Damien 200 000

Debtors 12 000

Stock 26 000

Loan To A Smart 4 000

454 000 454 000

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Example 2
Damien’s Discount Store
Statement of financial position as at 30 June 2011
Current Assets $ $ Current Liabilities $ $
Cash in hand 200 Creditors 11 000
Debtors 20 000 Bank overdraft 3 000
Stock 18 000
Cash at Bank 1 300 39 500

Non-Current Liabilities
Non-Current Assets Loan from Statewide Bank 20 000
Building 331 500 Mortgage Loan on Building 220 000 254 000
Shop Fittings 13 700
Equipment 43 400 Owner’s Equity
Furniture 21 900 Capital - Damien 200 000
Loan To A Smart 4 000 414 500
Total Assets 454 000 454 000

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 Liabilities
Assets +
Owner’s
Equity

ASSET EQUITY
(Amount owned by a = (Amount owed by a
business)
business)
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The Accounting Equation
The relationship between these three
elements can be expressed in the form of
an equation:

Assets = Liabilities + Owner’s equity

A = L + OE

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Relationship between the statement of
comprehensive income and the statement
of financial position

After the profit or loss has been calculated in the statement of

comprehensive income, it is added to or deducted from the capital
in the statement of financial position.

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What is the difference between an
expense and an assets?
An expense is not an asset.

An expense could be generally regarded

as a consumed benefit, whereas an asset
continues to have remaining benefits that
have not yet been consumed.

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Capital expenditure is incurred when a business
spends money either to:
Buy non-current assets; or
Add to the value of an existing non-current
asset.

Included in such amounts should be spending on:

Acquiring non-current assets;
Bringing them into the business;
Legal costs of buying buildings;
Carriage inwards on machinery bought;
Any other cost needed to get a non-current
asset ready for use.

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Revenue expenditure is not spent on increasing
the value of non-current assets, but is incurred in
running the business on a day-to-day basis.

Examples:
Buying a van is capital expenditure. The van will
be in use for several years and is, therefore, a
non-current asset.
Paying for petrol to use in the van is revenue
expenditure. This is because the expenditure is
used up in a short time and does not add to the
value of non-current assets.

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 Revenue expenditure is chargeable to the
SOCI.
 Capital expenditure will result in increased
figures for non-current assets in the SOFP.
 Getting the classification wrong affects the
profit reported and the capital account and
asset values in the financial statements. It is,
therefore, important that this classification is
correctly done.

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BRAIN BREAKS
Question 5
State whether the following items are assets, liabilities
or owner’s equity:

(a) Accounts receivable (b) Cash on hand

(c) Loan from S Abby Finances
(d) Mortgage loan (e) Land and buildings
(f) Accounts payable (g) Furniture
(h) Cash at bank (i) Motor vehicle
(j) Plant and machinery (k) Capital- P Brown

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Question 6
The following information relates to G Rocer, retailer
at 30 June 2017. You are required to:

(a) determine the owner’s equity in the business.

(b) prepare a statement of financial position as at 30
June 2017.

Information:
Premises, $25,000; creditors, $10,500; debtors, $6,000;
bank overdraft, $2,600; loan from AB Finances,$4,500;
stock of unsold goods, $1,550; cash on hand, $100.

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Question 7
The following information relates to Glenwood Private Hospital
(manager, B Closky) at 30 June 2016.

You are required to prepare a statement of financial position as

at 30 June 2016.

Information:
Loan from Moglic Finances, $50,000; ambulance, $70,000; stock
of pharmaceuticals, $35,000; premises, $700,000; beds, furniture
and fittings, $200,000; bank overdraft, $36,000; payables,
$43,400; receivables, $155,000; capital, $1,030,600.

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Question 8
The following information relates to L Vixen, carrier.
You are required to:
(a) prepare a statement of comprehensive income for
the month ended 30 June 2017
(b) prepare a statement of financial position as at 30
June 2017.

Information:
Revenue, $20,000; Repairs & maintenance, $3,000; Cash
in hand, $100; Debtor (L Gost), $3,000; Trucks, $150,000;
Storage yard, $50,000; Goodwill, $10,000; Creditor (AY
Garage), $2,000; Loan from Finance co, $14,000; Capital,
$207,100; Drawings, $100; Wages, $300; Petrol & Oil,
$500; Interest on loan, $100; Cash at bank, $11,000;
Debtor (B West), $15,000.
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The end of Topic 2

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