Question

Trendy plc
Statement of comprehensive income for the year ended 31 March 2020
	£
Revenue (W1)	4,933,500.00
Cost of sales (W1)	(1,968,720.00)
Gross profit	2,964,780.00
Distribution expenses (W1)	(265,200.00)
Administration expenses (W1)	(592,200.00)
Other operating income (2)	144,000.00
Interest expense (7) + (9)	(41,850.00)
Profit from operating activities	2,209,530.00
Finance costs (7)	(119,400.00)
Profit before tax	2,090,130.00
Taxation (W6)	(130,000.00)
Profit for the year	1,960,130.00
Internally generated goodwill	1,500,000.00
Provision for Legal Fees (4)	(46,295.00)
Provision for Legal dispute (4)	(92,590.00)
Loss due to Flash Flood	(240,000.00)
Loss due to Fraudulent reporting	(225,000.00)
Other items	896,115.00

Working - W1 - Operating expenses
	Revenue	Cost of Sales	Distribution Expenses	Admin expenses
	£	£	£	£
Per Trial Balance	4,933,500	1,855,200	227,700	404,700
Depreciation (1):
- Buildings (1)		113,520
- Motor Vehicle (1)			37,500
- Office Equipment (1)				187,500
Total to Statement of Comprehensive Income	4,933,500	1,968,720	265,200	592,20

Is this correct? Does finance cost to be post in SCI for Trendy Plc?

Answer 1

Yes it is correct as Statement of Comprehensive Income includes Finance Costs .Finance Costs are much more than Interest expenses from a broader sense.

Finance Costs on the whole are borrowing costs of funds used in the expansion and development of the business and it includes all processing costs of raising loan etc .Cost of finances used for non operational purposes but which are very much needed to establish and run a business in long term are classified as Finance Costs

So finance costs are not part of operating costs .Interest expenses related to working capital are more of interest charges that are operational than finance costs that are Non operational Expenses.

So finance Costs needs to be posted in SCI for Trendy Plc and reduced from Operating income to arrive at actual profit before tax

Note:

Make sure that Interest expenses of $ 41850 and Finance Costs of $ 119,400 are not clubbed and added or subtracted together and confused.Both are separate line items needed to be reported in Statement of Comprehensive Income.Both are different