Worked Example: Submay Sandwhiches

The following is a worked example to produce a Simple Statement of Comprehensive Income for the Year Ended 30 June 2021. The business is Submay Sandwiches (100% no affiliation with any major worldwide sandwich chains) which sells 12 inch long Sandwiches.

You are provided with Submay Sandwiches trial balance as at 30 June 2021.

Sales: 1,676,000
Interest Income: 9,000
Revaluation Reserve: 16,000
Cost of Sales: 299,000
Salary and Wages Expense: 140,000
Loss on Sale of Equipment: 7,508
Dividend Income from Investments: 17,000
Interest on Loan: 32,000
Office Rent Expense: 89,000
Office Supplies Expense: 43,250
Motor Vehicle Depreciation Expense: 15,000
Machinery Depreciation Expense: 43,000
Petrol Expense: 16,780 Additional Information:
During the year land was revalued upwards by $16,000.
Company tax rate is 30% on Profits.

Construct a Statement of Comprehensive Income for the Year Ended 30 June 2021.

Step 1: Label the Accounts

The first step is to label the trial balance accounts accordingly to the line classifications required for the Statement of Comprehensive Income

This will make the next step in calculating the total values easier. In this example, the following line classifications from the statement can be used:

Revenue: Sales
Cost of Sales
Other Income: Interest Income & Dividend Income from Investments
Expenses (Excluding Finance Costs): Salary & Wages, Loss on sale of equipment, Office rent, Office Supplies, Motor Vehicle depreciation, Machinery Depreciation, Petrol.
Finance Costs: Interest on Loan
Gains on Asset Revaluation (Other Comprehensive Income) For reference, accounts that are income are coloured green and accounts that are expenses are coloured red.

Step 2: Calculate the Total of Each Line Classification

The second step is to calculate the totals of each line classification, this will make it easier prior to entering the values into the statement.

The accounts included in each line item are placed in brackets below or summarised in the above image.

Revenue: $1,676,000 (Sales)
Cost of Sales: $ 299,000
Other Income: $ 26,000 (Interest Income, Dividend Income)
Expenses: $ 354,538 (Salary and Wages Expense, Loss on Sale of Equipment, Office Rent Expense, Office Supplies Expense, Motor Vehicle Depreciation Expense. Machinery Depreciation Expense, Petrol Expense)
Finance Costs: $ 32,000 (Interest on Loan)
Gains on Asset Revaluation: $ 16,000

Step 3: Revenue, Cost of Sales and Calculation of Gross Profit

1) Fill in the values in the following order in the Statement of Comprehensive Income

Revenue: $1,676,000
Cost of Sales: $ 299,000

2) Calculate the Gross Profit: Gross Profit = Revenue - Cost of Sales = 1,676,000 - 299,000 = 299,000 Gross Profit is the profit a business makes after deducting the costs of making and selling their product (Cost of Sales) or the cost of providing their services from the Revenue (Sales).

Step 4: Other Income, Expenses, Finance Costs and Profit Before Tax

1) Fill in the values in the following order in the Statement of Comprehensive Income

Other Income: 26,000
Expenses: 354,538
Finance Costs: 32,000

2) Calculate the Profit Before Tax Profit Before Tax = Gross Profit + Other Income - Expenses (Excl. Finance)

Finance Costs = 1,377,000 + 26,000 - 354,538 - 32,000 = 1,016,462

Step 5: Calculation of Tax and Profit for the Period

1) Calculate Income Tax Expense: The Additional Information beneath the Trial balance tells us income tax is 30% of profits.

Income Tax Expense = Profit Before Tax * Tax Rate = 1,016,462 * 30% = 304,938.60 = 304,939 (Rounded Up)

2) Calculate the Profit for the Period: This is the Profit after the Income Tax Expense has been accounted for.

Profit for the Period (After Tax) = Profit Before Tax - Income Tax Expense = 1,016,462 - 304,939 = 711,523 Add both calculated values into the Statement of Comprehensive Income.

Step 6: Other Comprehensive Income

1) Fill in the values for the following into the statement:

Gains in Asset Revaluation (Other Comprehensive Income): $ 32,000

2) Calculate the Total Comprehensive Income for the Period:

Total Comprehensive Income = Profit OR Loss for the Period + Gains or Losses = 711,523 +32,000 = 743,523

Add this final figure in the statement. * If the business had made a loss instead of a profit, the negative figure would be recorded in brackets '( )'. This will also be the case if the business made a loss rather than a gain in asset revaluation.

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