Why is "Putting factory costs in the statement of profit or loss" a common mistake in Statement of Profit or Loss?

Why it happens: Listing all expenses together. How to avoid it: Factory costs belong ONLY in the manufacturing account; the profit or loss has office/selling/finance costs. Source: 9706 Examiner Reports

Why is "Forgetting to add the factory profit" a common mistake in Statement of Profit or Loss?

Why it happens: Treating the manufacturer like a trader. How to avoid it: If goods are transferred at a mark-up, ADD the factory profit in the profit section. Source: 9706 Examiner Reports

Why is "Omitting the provision adjustment" a common mistake in Statement of Profit or Loss?

Why it happens: Adding factory profit but not the provision. How to avoid it: Adjust for the CHANGE in the provision: increase deducted, decrease added. Source: 9706 Examiner Reports

Why is "Adjusting finished goods in the manufacturing account" a common mistake in Statement of Profit or Loss?

Why it happens: Confusing the three inventories. How to avoid it: Finished goods are adjusted in the TRADING section (cost of sales), not the manufacturing account. Source: 9706 Examiner Reports

Why is "Getting the provision direction wrong" a common mistake in Statement of Profit or Loss?

Why it happens: Confusing increase and decrease. How to avoid it: Increase in provision → DEDUCT from profit; decrease → ADD to profit. Source: 9706 Examiner Reports

Why is "Using cost-of-sales at transfer value without adding factory profit" a common mistake in Statement of Profit or Loss?

Why it happens: Half-applying the factory-profit treatment. How to avoid it: If cost of sales uses transfer value, you MUST add the factory profit (and adjust the provision). Source: 9706 Examiner Reports

Cambridge International A Levels Accounting (9706)

Statement of Profit or Loss

0% Complete

Detailed Study Notes

Detailed notes on Manufacturing businesses for Cambridge International A Levels Accounting, covering key concepts, explanations, examples, and exam-focused revision points.

Manufacturer's Statement of Profit or Loss — Cambridge AS & A Level Accounting 9706 Study Notes (2026-2028)

From cost of production to profit. Learn how a manufacturer's statement of profit or loss uses the cost of production from the manufacturing account, deals with the factory profit and the change in the provision for unrealised profit, and deducts office, selling and finance costs to find the profit for the year.

At a glance

The statement continues from the manufacturing account: the cost of production flows into the trading section.
Cost of sales = opening finished goods + cost of production (transferred) − closing finished goods.
Gross profit = revenue − cost of sales.
If goods are transferred at a factory profit, that profit is added in the profit section.
The change in the provision for unrealised profit adjusts the profit (increase deducted, decrease added).
Office, selling, distribution and finance costs are deducted (NOT factory costs — those are in the manufacturing account).
Profit for the year = gross profit + factory profit − change in provision + other income − non-factory expenses.

What you’ll learn

Mapped to the Cambridge International A Level 9706 syllabus (2026-2028).

3.3 — Prepare a manufacturer's statement of profit or loss using the cost of production.
3.3 — Incorporate the factory profit and the change in the provision for unrealised profit.
3.3 — Deduct non-factory expenses to find the profit for the year.

The trading section

Cost of production replaces purchases to find cost of sales and gross profit.

A manufacturer's statement of profit or loss continues straight from the manufacturing account. In the trading section, the cost of production (transferred from the manufacturing account) takes the place of 'purchases':

$\text{Cost of sales} = \text{Opening finished goods} + \text{Cost of production (transferred)} - \text{Closing finished goods}$

$\text{Gross profit} = \text{Revenue} - \text{Cost of sales}$

So the finished-goods inventory is adjusted here (not in the manufacturing account, which uses raw materials and WIP). If the goods were transferred at cost, this is straightforward. If they were transferred at cost + a factory profit, the cost of production figure already includes that profit — handled in the next section.

Cost of production replaces 'purchases' in the trading section.
Cost of sales = opening FG + cost of production − closing FG.
Gross profit = revenue − cost of sales.
Finished goods are adjusted here, not in the manufacturing account.

See the full worked example for statement of profit or loss →

Factory profit and the provision

Add the factory profit, then adjust for the change in the unrealised-profit provision.

Where goods are transferred at cost + factory profit, the profit section also shows:

Factory profit — added as income. It represents the gain from making goods more cheaply than buying them in. (The cost of sales is based on the transfer value, so the factory profit is added back to reflect the real profit.)
Change in the provision for unrealised profit — because unsold finished goods carry the factory profit, the provision is adjusted:
- an increase in the provision is deducted from profit;
- a decrease is added to profit.

$\text{Adjustment} = \text{Opening provision} - \text{Closing provision}$

These two items together ensure only the realised factory profit (on goods actually sold) is recognised. If goods are transferred at cost (no factory profit), neither item appears.

Factory profit is added as income in the profit section.
Adjust for the change in the provision for unrealised profit.
Increase in provision deducted; decrease added.
If transferred at cost (no factory profit), neither item appears.

See the full worked example for statement of profit or loss →

Deducting non-factory expenses

Office, selling, distribution and finance costs — never factory costs.

From the gross profit (plus factory profit and other income, less the provision change), deduct the non-factory expenses:

Administrative/office expenses — office salaries, office rent, office equipment depreciation, stationery.
Selling and distribution expenses — advertising, sales staff commission, carriage outwards, delivery vehicle costs.
Finance costs — loan/debenture interest, bank overdraft interest.

Crucially, factory costs do NOT appear here — factory rent, factory wages, machine depreciation and other production overheads are all in the manufacturing account. Putting a factory cost in the profit or loss (or an office cost in the manufacturing account) is the classic error that double-counts or misplaces costs.

Other income (e.g. rent received, discount received) is added before deducting expenses.

Deduct administrative, selling/distribution and finance costs.
Factory costs are NOT here — they are in the manufacturing account.
Add other income (rent received, discounts received).
Keep factory and non-factory costs strictly separate.

See the full worked example for statement of profit or loss →

The profit for the year and the full sequence

Combine everything into the profit for the year.

Putting it together:

$\text{Profit for the year} = \text{Gross profit} + \text{Factory profit} - \text{Increase in provision} + \text{Other income} - \text{Non-factory expenses}$

(use + decrease in provision if the provision fell).

A clean layout for a manufacturer's statement of profit or loss:

	$
Revenue	X
less Cost of sales (opening FG + cost of production − closing FG)	(X)
Gross profit	X
add Factory profit	X
less Increase in provision for unrealised profit	(X)
add Other income	X
less Administrative / selling / finance expenses	(X)
= Profit for the year	XX

The full manufacturer sequence is therefore manufacturing account (cost of production) → trading section (gross profit) → profit or loss (profit for the year). The single biggest skill is classifying every cost into the right section.

Profit = gross profit + factory profit − increase in provision + other income − non-factory expenses.
Layout: revenue → cost of sales → gross profit → factory profit & provision → expenses → profit.
Sequence: manufacturing account → trading → profit or loss.
Classify every cost into the correct section.

Quick recap

The cost of production from the manufacturing account flows into the trading section.
Cost of sales = opening FG + cost of production − closing FG; gross profit = revenue − cost of sales.
Add the factory profit (if any) and adjust for the change in the provision for unrealised profit.
Deduct office, selling/distribution and finance costs — never factory costs.
Add other income before deducting expenses.
Profit for the year = gross profit + factory profit − increase in provision + other income − non-factory expenses.

Memorise this

Verbatim phrases and definitions Cambridge mark schemes credit.

Cost of sales = opening FG + cost of production − closing FG.
Factory-profit cases: ADD factory profit, then adjust for the CHANGE in the provision.
Increase in provision deducted; decrease added.
Factory costs are in the MANUFACTURING ACCOUNT, never in the profit or loss.

How it’s examined

Tested on Paper 3 (A Level): prepare a manufacturer's statement of profit or loss from the cost of production, including the factory profit and provision adjustment, and deducting non-factory expenses (commonly [8-14] marks). Examiner reports note candidates putting factory costs in the profit or loss and omitting the provision adjustment.

Sources: Cambridge International AS & A Level Accounting 9706 syllabus (2026-2028); 9706 Paper 3 past papers & mark schemes, 2022-2024; 9706 Examiner Reports, 2022-2024. Last reviewed 2026-06-19.

Take this whole topic with you

Step-by-step worked examples — Statement of Profit or Loss

Step-by-step solutions to past-paper-style questions on statement of profit or loss, written exactly the way a tutor would explain them at the board.

Question type:

1Cost of sales for a manufacturer (4 marks)
Getting startedMulti-step problem• 9706 Paper 3 style• cost of sales, AO2
Question
Cost of production transferred $145,500. Opening finished goods$ 12,000; closing finished goods $14,500. Calculate the cost of sales. (4 marks)
Step-by-step solution
1. Step 1
  Cost of sales = opening FG + cost of production − closing FG.
2. Step 2
  = 12,000 + 145,500 − 14,500.
3. Step 3
  = $143,000.
Answer
Cost of sales = $143,000.
Examiner tip
The cost of production replaces 'purchases'; finished goods are adjusted here.
2Gross profit (3 marks)
Getting startedDirect calculation• gross profit, AO2
Question
Revenue $210,000; cost of sales$ 143,000. Calculate the gross profit. (3 marks)
Step-by-step solution
1. Step 1
  Gross profit = revenue − cost of sales.
2. Step 2
  = 210,000 − 143,000.
3. Step 3
  = $67,000.
Answer
Gross profit = $67,000.
Examiner tip
Revenue less cost of sales, exactly as for a trader.
3Which section? (4 marks)
Getting startedIdentify & classify• classification, AO1
Question
State whether each is in the manufacturing account (M) or the statement of profit or loss (P): (a) factory machine depreciation; (b) loan interest; (c) office salaries; (d) factory supervisor's wages. (4 marks)
Step-by-step solution
1. Step 1
  (a) Factory machine depreciation → M.
2. Step 2
  (b) Loan interest → P (a finance cost).
3. Step 3
  (c) Office salaries → P (an administrative expense).
4. Step 4
  (d) Factory supervisor's wages → M (factory overhead).
Answer
(a) M; (b) P; (c) P; (d) M.
Examiner tip
Factory costs go in the manufacturing account; finance/office/selling costs in the profit or loss.
4Add the factory profit and provision (5 marks)
Building confidenceMulti-step problem• factory profit, AO2
Question
Gross profit $67,000. Factory profit$ 20,000. Provision for unrealised profit rose from $3,000 to$ 4,000. Calculate the profit after these items (before other expenses). (5 marks)
Step-by-step solution
1. Step 1
  Add factory profit: 67,000 + 20,000 = 87,000.
2. Step 2
  Increase in provision = 4,000 − 3,000 = 1,000 (deducted).
3. Step 3
  = 87,000 − 1,000 = $86,000.
Answer
$86,000.
Examiner tip
Add the factory profit; deduct the increase in the provision.
5Deduct non-factory expenses (5 marks)
Building confidenceMulti-step problem• expenses, AO2
Question
Profit after factory profit and provision is $86,000. Office salaries$ 22,000; advertising $6,000; loan interest$ 3,000; rent received (other income) $4,000. Calculate the profit for the year. (5 marks)
Step-by-step solution
1. Step 1
  Add other income: 86,000 + 4,000 = 90,000.
2. Step 2
  Deduct expenses: office salaries 22,000 + advertising 6,000 + loan interest 3,000 = 31,000.
3. Step 3
  Profit for the year = 90,000 − 31,000 = $59,000.
Answer
Profit for the year = $59,000.
Examiner tip
Only non-factory expenses are deducted here; add other income first.
6Transferred at cost (4 marks)
Building confidenceMulti-step problem• transfer at cost, AO2
Question
Goods are transferred at cost (no factory profit). Gross profit $54,000; office expenses$ 19,000; selling expenses $8,000. Calculate the profit for the year. (4 marks)
Step-by-step solution
1. Step 1
  No factory profit and no provision adjustment (transferred at cost).
2. Step 2
  Profit for the year = gross profit − expenses = 54,000 − (19,000 + 8,000).
3. Step 3
  = 54,000 − 27,000 = $27,000.
Answer
Profit for the year = $27,000.
Examiner tip
If transferred at cost, there is no factory profit and no provision adjustment.
7Provision falls (4 marks)
StretchMulti-step problem• provision, AO2
Question
Gross profit $70,000; factory profit$ 18,000; provision for unrealised profit fell from $5,000 to$ 3,500. Calculate the profit after these items. (4 marks)
Step-by-step solution
1. Step 1
  Add factory profit: 70,000 + 18,000 = 88,000.
2. Step 2
  Decrease in provision = 5,000 − 3,500 = 1,500 (added).
3. Step 3
  = 88,000 + 1,500 = $89,500.
Answer
$89,500.
Examiner tip
A decrease in the provision is ADDED to profit.
8Full profit for the year (6 marks)
StretchMulti-step problem• profit for the year, AO2
Question
Revenue $230,000; cost of sales (at transfer value)$ 150,000; factory profit $25,000; provision increased by$ 2,000; office expenses $24,000; selling expenses$ 9,000; loan interest $4,000. Calculate the profit for the year. (6 marks)
Step-by-step solution
1. Step 1
  Gross profit = 230,000 − 150,000 = 80,000.
2. Step 2
  Add factory profit: 80,000 + 25,000 = 105,000.
3. Step 3
  Deduct increase in provision: 105,000 − 2,000 = 103,000.
4. Step 4
  Deduct expenses: 24,000 + 9,000 + 4,000 = 37,000.
5. Step 5
  Profit for the year = 103,000 − 37,000 = $66,000.
Answer
Profit for the year = $66,000.
Examiner tip
Gross profit + factory profit − provision increase − non-factory expenses.
9Why both factory profit and provision (4 marks)
StretchWord problem• factory profit, AO3
Question
Explain why, when goods are transferred at a factory profit, the statement of profit or loss must both add the factory profit and adjust for the provision for unrealised profit. (4 marks)
Step-by-step solution
1. Step 1
  The factory profit is added to recognise the gain from making goods cheaply (cost of sales is at transfer value).
2. Step 2
  But some finished goods are unsold, and their factory profit is not yet earned.
3. Step 3
  The provision adjustment removes the unrealised part of the factory profit.
4. Step 4
  Together they leave only the realised factory profit (on goods actually sold) — satisfying prudence.
Answer
Add factory profit (gain from making), then remove the unrealised part via the provision — leaving realised profit.
Examiner tip
The two items work together to recognise only realised factory profit.
10Spot the misplaced cost (4 marks)
StretchWord problem• classification, AO3
Question
A student included factory rent of $12,000 in the statement of profit or loss as well as in the manufacturing account. Explain the error and its effect on profit. (4 marks)
Step-by-step solution
1. Step 1
  Factory rent is a factory overhead and belongs only in the manufacturing account.
2. Step 2
  Including it again in the profit or loss counts it twice.
3. Step 3
  This understates the profit for the year by $12,000.
4. Step 4
  Correct: include it once, in the manufacturing account (raising the cost of production).
Answer
Double-counting factory rent understates profit by $12,000; it belongs only in the manufacturing account.
Examiner tip
A factory cost must appear in only one place — the manufacturing account.

Model Answers — Statement of Profit or Loss

High-scoring sample answers for statement of profit or loss on the Cambridge IGCSE paper, with examiner-style notes mapping each response to the mark scheme and assessment objectives.

Question 1
9706 Paper 3 style4 marks
Q (4 marks). Cost of production transferred $160,000. Opening finished goods$ 15,000; closing finished goods $18,000. Calculate the cost of sales.
Model answer
Cost of sales = opening finished goods + cost of production − closing finished goods = 15,000 + 160,000 − 18,000 = $157,000.
Why this scores
Marking (point-based, 4). Cost of production replaces purchases (1); add opening FG, deduct closing FG (1); $157,000 (2).
Question 2
9706 Paper 3 style4 marks
Q (4 marks). State whether each appears in the manufacturing account or the statement of profit or loss: (a) factory power; (b) debenture interest; (c) delivery van running costs; (d) indirect factory wages.
Model answer
(a) Factory power → manufacturing account. (b) Debenture interest → statement of profit or loss (finance cost). (c) Delivery van running costs → statement of profit or loss (distribution). (d) Indirect factory wages → manufacturing account.
Why this scores
Marking (point-based, 4). 1 mark each. Factory vs finance/distribution.
Question 3
9706 Paper 3 style3 marks
Q (3 marks). Revenue $260,000; cost of sales$ 171,000. Calculate the gross profit.
Model answer
Gross profit = revenue − cost of sales = 260,000 − 171,000 = $89,000.
Why this scores
Marking (point-based, 3). Method (1); $89,000 (2).
Question 4
9706 Paper 3 style5 marks
Q (5 marks). Gross profit is $89,000. Goods were transferred at a factory profit of$ 24,000. The provision for unrealised profit rose from $4,200 to$ 5,000. Calculate the profit after these items (before other expenses).
Model answer
Add factory profit: 89,000 + 24,000 = 113,000. Increase in provision = 5,000 − 4,200 = 800, deducted: 113,000 − 800 = $112,200.
Why this scores
Marking (point-based, 5). Add factory profit (2); increase in provision $800 deducted (2);$ 112,200 (1).
Question 5
9706 Paper 3 style5 marks
Q (5 marks). Profit after factory profit and provision is $112,200. Add: rent received$ 5,000. Deduct: administrative expenses $30,000; selling expenses$ 11,000; loan interest $6,000. Calculate the profit for the year.
Model answer
Add other income: 112,200 + 5,000 = 117,200. Deduct expenses: 30,000 + 11,000 + 6,000 = 47,000. Profit for the year = 117,200 − 47,000 = $70,200.
Why this scores
Marking (point-based, 5). Add other income (1); total expenses $47,000 (2); profit$ 70,200 (2).
Question 6
9706 Paper 3 style8 marks
Q (8 marks). Prepare the profit section. Revenue $300,000; cost of sales (at transfer value)$ 195,000; factory profit $30,000; provision for unrealised profit increased by$ 1,500; administrative expenses $34,000; distribution expenses$ 14,000; finance costs $5,000; discount received$ 2,000. Calculate the profit for the year.
Model answer
Gross profit = 300,000 − 195,000 = $105,000. Add factory profit: 105,000 + 30,000 = 135,000. Deduct increase in provision 1,500: 135,000 − 1,500 = 133,500. Add discount received 2,000: 135,500... = 133,500 + 2,000 = 135,500. Deduct expenses: 34,000 + 14,000 + 5,000 = 53,000. Profit for the year = 135,500 − 53,000 = $82,500.
Why this scores
Marking (point-based, 8). Gross profit (2); factory profit added (1); provision deducted (1); other income (1); expenses (2); profit $82,500 (1).
Question 7
9706 Paper 3 style4 marks
Q (4 marks). A manufacturer transfers its goods to the trading section at cost (no factory profit). Explain what items would NOT appear in its statement of profit or loss as a result.
Model answer
Because the goods are transferred at cost, there is no factory profit to add and no unrealised profit in the finished-goods inventory. Therefore the statement of profit or loss would not include (i) a factory profit line, nor (ii) any provision for unrealised profit adjustment. The trading section simply uses the cost of production at cost, and gross profit flows to the profit for the year after deducting non-factory expenses.
Why this scores
Marking (point-based, 4). No factory profit line (2); no provision adjustment (2).
Question 8
9706 Paper 3 style6 marks
Q (6 marks). Explain why a manufacturer that transfers goods at a factory profit must both add the factory profit and adjust for the provision for unrealised profit in its statement of profit or loss.
Model answer
When goods are transferred at cost plus a factory profit, the cost of sales in the trading section is based on the transfer value, which already includes that profit. To show the business's true result, the factory profit earned on goods that have been made and sold must be added back in the profit section — it represents the benefit of making goods more cheaply than buying them in.

However, not all the transferred goods are sold; some remain in closing finished-goods inventory, and the factory profit on those unsold goods is unrealised. Under the prudence concept, this unrealised profit must be removed by adjusting the provision for unrealised profit (an increase deducted, a decrease added).

Doing both ensures that the statement recognises only the realised factory profit — on goods actually sold — neither overstating profit by ignoring the unsold element nor omitting the genuine gain on goods sold.
Why this scores
Marking (point-based, 6). Add factory profit / cost of sales at transfer value (~2); unsold goods carry unrealised profit / prudence (~2); both → only realised profit (~2).
Question 9
9706 Paper 3 style5 marks
Q (5 marks). A trainee included factory insurance of $9,000 in both the manufacturing account and the statement of profit or loss. Explain the error, its effect on the profit for the year, and the correct treatment.
Model answer
Factory insurance is a factory overhead and should appear only in the manufacturing account, where it forms part of the cost of production. By also including it as an expense in the statement of profit or loss, the trainee has counted it twice, which understates the profit for the year by $9,000.

The correct treatment is to include the $9,000 once, as a factory overhead in the manufacturing account. It then affects profit indirectly through the cost of production (and hence cost of sales), and must not be deducted again as a separate expense.
Why this scores
Marking (point-based, 5). Factory overhead / manufacturing account only (2); double-counted, profit understated $9,000 (2); correct = once in manufacturing account (1).
Question 10
9706 Paper 3 style3 marks
Q (3 marks). The provision for unrealised profit decreased from $6,000 to$ 4,500 during the year. State the effect on the profit for the year and why.
Model answer
The provision decreased by 6,000 − 4,500 = $1,500, which is added to the profit for the year. A fall in the provision means previously unrealised factory profit has now been realised (the related goods have been sold), so it is released to profit.
Why this scores
Marking (point-based, 3). Decrease $1,500 (1); added to profit (1); profit realised (1).

Key Formulae — Statement of Profit or Loss

The formulae you need to memorise for statement of profit or loss on the Cambridge IGCSE paper, with every variable defined in plain English and a note on when to use it.

Cost of sales (manufacturer)
$Cost\ of\ sales = Opening\ FG + Cost\ of\ production - Closing\ FG$
$FG$
finished goods inventory
$Cost of production$
transferred from the manufacturing account
When to use
To find cost of sales in the trading section of a manufacturer.
Example
12,000 + 145,500 − 14,500 = $143,000.
Profit for the year (manufacturer)
$Profit = Gross\ profit + Factory\ profit - Increase\ in\ provision + Other\ income - Non\text{-}factory\ expenses$
$Factory profit$
added when goods transferred at a mark-up
$Increase in provision$
change in the provision for unrealised profit (use + if it fell)
$Non-factory expenses$
office, selling/distribution and finance costs
When to use
To find the manufacturer's profit for the year.
Example
80,000 + 25,000 − 2,000 − 37,000 = $66,000.

Key Definitions and Keywords — Statement of Profit or Loss

Definitions to memorise and the exact keywords mark schemes credit for statement of profit or loss answers — sharpened from recent examiner reports for the 2026 Cambridge IGCSE sitting.

Cost of sales (manufacturer)
Examiner keyword
Opening finished goods + cost of production transferred − closing finished goods.
Gross profit
Examiner keyword
Revenue − cost of sales.
Factory profit
Examiner keyword
The mark-up on goods transferred from the factory; added as income in the profit section.
Change in provision for unrealised profit
Examiner keyword
The movement in the provision; an increase is deducted from profit, a decrease added.
Non-factory expenses
Examiner keyword
Administrative (office), selling/distribution and finance costs deducted in the profit or loss.
Other income
Income outside trading (e.g. rent received, discount received), added before expenses.
Profit for the year
Examiner keyword
Gross profit + factory profit − increase in provision + other income − non-factory expenses.

Common Mistakes and Misconceptions — Statement of Profit or Loss

The traps other students keep falling into on statement of profit or loss questions — taken from recent Cambridge IGCSE examiner reports and mark schemes — and how to avoid them.

✕Putting factory costs in the statement of profit or loss
9706 Examiner Reports
Why it happens
Listing all expenses together.
How to avoid it
Factory costs belong ONLY in the manufacturing account; the profit or loss has office/selling/finance costs.
✕Forgetting to add the factory profit
9706 Examiner Reports
Why it happens
Treating the manufacturer like a trader.
How to avoid it
If goods are transferred at a mark-up, ADD the factory profit in the profit section.
✕Omitting the provision adjustment
9706 Examiner Reports
Why it happens
Adding factory profit but not the provision.
How to avoid it
Adjust for the CHANGE in the provision: increase deducted, decrease added.
✕Adjusting finished goods in the manufacturing account
9706 Examiner Reports
Why it happens
Confusing the three inventories.
How to avoid it
Finished goods are adjusted in the TRADING section (cost of sales), not the manufacturing account.
✕Getting the provision direction wrong
9706 Examiner Reports
Why it happens
Confusing increase and decrease.
How to avoid it
Increase in provision → DEDUCT from profit; decrease → ADD to profit.
✕Using cost-of-sales at transfer value without adding factory profit
9706 Examiner Reports
Why it happens
Half-applying the factory-profit treatment.
How to avoid it
If cost of sales uses transfer value, you MUST add the factory profit (and adjust the provision).

Statement of Profit or Loss

Detailed Study Notes

At a glance

What you’ll learn

Quick recap

Memorise this

How it’s examined

Take this whole topic with you

1Cost of sales for a manufacturer (4 marks)

2Gross profit (3 marks)

3Which section? (4 marks)

4Add the factory profit and provision (5 marks)

5Deduct non-factory expenses (5 marks)

6Transferred at cost (4 marks)

7Provision falls (4 marks)

8Full profit for the year (6 marks)

9Why both factory profit and provision (4 marks)

10Spot the misplaced cost (4 marks)

Cost of sales (manufacturer)

Profit for the year (manufacturer)

Cost of sales (manufacturer)

Gross profit

Factory profit

Change in provision for unrealised profit

Non-factory expenses

Other income

Profit for the year

✕Putting factory costs in the statement of profit or loss

✕Forgetting to add the factory profit

✕Omitting the provision adjustment

✕Adjusting finished goods in the manufacturing account

✕Getting the provision direction wrong

✕Using cost-of-sales at transfer value without adding factory profit