From the following information of KL Ltd., prepare a Common Size Statement of Profit and Loss for the year ended 31st March, 2024 : | Particulars | Amount (₹) | | --- | --- | | Revenue from Operations | 20,00,000 | | Other Income | 5,00,000 | | Cost of Materials Consumed | 12,00,000 | | Employee Benefit Expenses | 6,00,000 | | Depreciation | 2,00,000 |

From the following information of KL Ltd., prepare a Common Size Statement of Profit and Loss for the year end

Question

From the following information of KL Ltd., prepare a Common Size Statement of Profit and Loss for the year ended 31st March, 2024 :

Particulars	Amount (₹)
Revenue from Operations	20,00,000
Other Income	5,00,000
Cost of Materials Consumed	12,00,000
Employee Benefit Expenses	6,00,000
Depreciation	2,00,000

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Concept understanding — Profit Before Tax

Profit Before Tax (PBT) – A First Look

Think of a business like a small shop you run. At the end of the year, you add up all the money you earned from selling goods (revenue) and subtract all the money you spent on buying stock, paying rent, electricity, and salaries. What remains is your profit — the reward for your effort.

But here's the catch: before you can take that profit home, the government wants its share — income tax. So the profit you calculate before paying tax is called Profit Before Tax (PBT). After you pay tax, what's left is Profit After Tax (PAT) — the amount you can actually keep or reinvest.

Precise Meaning (as per NCERT Class 12 Accountancy)

In the context of a company's financial statements, Profit Before Tax is the net profit earned by the company from its operations and other activities before deducting the provision for income tax.

It appears in the Statement of Profit and Loss (the new name for the Profit & Loss Account under Companies Act, 2013). The format is:

Profit Before Tax = Revenue from Operations + Other Income - Total Expenses (excluding tax)

Where total expenses include:

Cost of materials consumed / purchases
Changes in inventories
Employee benefit expenses
Depreciation and amortisation
Finance costs (interest)
Other expenses (rent, repairs, etc.)

Why Does PBT Matter?

It shows operating efficiency – PBT tells you how well the business is doing before the taxman's cut. A company with high PBT but low PAT might be paying heavy taxes (or has deferred tax issues).
It's used for comparisons – Different companies may face different tax rates (e.g., new manufacturing units get tax holidays). Comparing PBT (instead of PAT) gives a fairer picture of their core performance.
It's the base for tax calculation – The company estimates its tax liability on PBT and creates a provision.

Accounting Treatment – Which Account is Debited/Credited?

In the Statement of Profit and Loss, the treatment is straightforward:

Debit side (expenses): All expenses are debited.
Credit side (incomes): All revenues and gains are credited.
The balancing figure after all items (except tax) is Profit Before Tax – shown on the credit side.
Then, Less: Provision for Tax is shown as a deduction from PBT to arrive at Profit After Tax.

Journal entry for creating tax provision:

Particulars	Debit (₹)	Credit (₹)
Profit & Loss A/c (or Statement of P&L) Dr.	XXX
To Provision for Tax A/c		XXX
(Being provision for income tax created)

Debit: Profit & Loss (Statement of P&L) – reduces the profit.
Credit: Provision for Tax – a current liability shown in the Balance Sheet.

When tax is actually paid later:

Particulars	Debit (₹)	Credit (₹)
Provision for Tax A/c Dr.	XXX
To Bank A/c		XXX
(Being tax paid)

Format of Statement of Profit and Loss (as per NCERT – Part I of Schedule III)

Below is the relevant portion showing how PBT appears. Note: This is a simplified extract.

Particulars	Note No.	Amount (₹)
I. Revenue from Operations		10,00,000
II. Other Income		50,000
III. Total Revenue (I + II)		10,50,000
IV. Expenses:

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A Common Size Statement of Profit and Loss presents each item of the statement as a percentage of Revenue from Operations. This standardization allows for easy comparison of the financial performance of a company over different periods or with other companies, irrespective of their absolute size.

Here is the Common Size Statement of Profit and Loss for KL Ltd. for the year ended 31st March, 2024:

Common Size Statement of Profit and Loss

for the year ended 31st March, 2024

Particulars	Absolute Amount (₹)	% of Revenue from Operations
I. Revenue from Operations	20,00,000	100.00
II. Other Income	5,00,000	25.00
III. Total Revenue (I + II)	25,00,000	125.00
IV. Expenses:
a. Cost of Materials Consumed	12,00,000	60.00

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The Common Size Statement of Profit and Loss expresses each item as a percentage of Revenue from Operations, showing that Profit Before Tax is 25% of Revenue from Operations.

A Common Size Statement of Profit and Loss is a financial analysis tool used to compare the performance of a company over different periods or to compare it with other companies in the same industry. The core concept is to express each item in the Statement of Profit and Loss as a percentage of a common base figure. For the Statement of Profit and Loss, the common base is always Revenue from Operations.

The purpose of this statement is to highlight the relative importance of each item and to show the composition of revenue and expenses. By converting all figures to percentages, the impact of absolute size differences is eliminated, making comparisons more meaningful. For instance, if 'Cost of Materials Consumed' is 60% of Revenue from Operations, it tells us that for every rupee of revenue earned from operations, 60 paise are spent on materials.

Treatment of Items:

Each line item in the Statement of Profit and Loss (like Other Income, Cost of Materials Consumed, Employee Benefit Expenses, Depreciation, and ultimately Profit Before Tax) is divided by the Revenue from Operations for the same period and then multiplied by 100 to express it as a percentage. Revenue from Operations itself is always taken as 100%.

Watch out

Always use Revenue from Operations as the base for calculating percentages in a Common Size Statement of Profit and Loss. Do not use Total Revenue or any other figure as the base.

Common Size Statement of Profit and Loss

For the year ended 31st March, 2024

Particulars	Note No.	Absolute Amount (₹)	% of Revenue from Operations
I. Revenue from Operations		20,00,000	100.00
II. Other Income	1	5,00,000	25.00
III. Total Revenue (I + II)	2	25,00,000	125.00
IV. Expenses:
a. Cost of Materials Consumed	3	12,00,000	60.00
b. Employee Benefit Expenses	4	6,00,000	30.00
c. Depreciation	5	2,00,000	10.00
Total Expenses	6	20,00,000	100.00
V. Profit Before Tax (III - IV)	7	5,00,000	25.00

Working Notes

1. Percentage of Other Income

Percentage = (Other Income / Revenue from Operations) $\times$ 100

Percentage = (₹5,00,000 / ₹20,00,000) $\times$ 100 = 25.00%

2. Percentage of Total Revenue

Total Revenue = Revenue from Operations + Other Income

Total Revenue = ₹20,00,000 + ₹5,00,000 = ₹25,00,000

Percentage = (Total Revenue / Revenue from Operations) $\times$ 100 …

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Step-by-step classification

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Common Size Statement of Profit and Loss

Working Notes

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