From the following information, prepare a Common Size Statement of Profit and Loss of QLM Ltd. for the year ended 31st March, 2023 and 31st March, 2024. | Particulars | 2022 – 23 (₹) | 2023 – 24 (₹) | | --- | --- | --- | | Revenue from operations | 40,00,000 | 50,00,000 | | Cost of revenue from operations | 20,00,000 | 25,00,000 | | Other expenses | 4,00,000 | 5,00,000 | | Tax Rate 50% | | |

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

Question

From the following information, prepare a Common Size Statement of Profit and Loss of QLM Ltd. for the year ended 31st March, 2023 and 31st March, 2024.

Particulars	2022 – 23 (₹)	2023 – 24 (₹)
Revenue from operations	40,00,000	50,00,000
Cost of revenue from operations	20,00,000	25,00,000
Other expenses	4,00,000	5,00,000
Tax Rate 50%

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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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Here is the Common Size Statement of Profit and Loss of QLM Ltd. for the years ended 31st March, 2023 and 2024.

Step 1 – Calculate Profit Before Tax (PBT) for each year

For 2022-23:

Revenue from operations = ₹40,00,000

Less: Cost of revenue from operations = ₹20,00,000

Less: Other expenses = ₹4,00,000

Profit Before Tax = ₹40,00,000 – ₹20,00,000 – ₹4,00,000 = ₹16,00,000

For 2023-24:

Revenue from operations = ₹50,00,000

Less: Cost of revenue from operations = ₹25,00,000

Less: Other expenses = ₹5,00,000

Profit Before Tax = ₹50,00,000 – ₹25,00,000 – ₹5,00,000 = ₹20,00,000

Step 2 – Calculate Tax (50% of PBT)

2022-23: 50% of ₹16,00,000 = ₹8,00,000

2023-24: 50% of ₹20,00,000 = ₹10,00,000

Step 3 – Calculate Profit After Tax (PAT)

2022-23: ₹16,00,000 – ₹8,00,000 = ₹8,00,000

2023-24: ₹20,00,000 – ₹10,00,000 = ₹10,00,000

Step 4 – Express each item as a percentage of Revenue from operations (the base)

Particulars	2022-23 (₹)	% of Revenue	2023-24 (₹)	% of Revenue
I. Revenue from operations	40,00,000	100.00	50,00,000	100.00
II. Expenses
Cost of revenue from operations	20,00,000	50.00	25,00,000	50.00

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In a Common Size Statement of Profit and Loss, every item is shown as a percentage of Revenue from Operations (100%). For QLM Ltd. the cost of revenue is 50%, other expenses 10%, profit before tax 40% and profit after tax 20% in both years - margins stayed constant even though revenue grew 25%.

Concept

A Common Size Statement expresses each line item as a percentage of Revenue from Operations, which is always taken as 100%. This vertical analysis lets us compare the cost structure and profitability across years regardless of scale. Tax is charged at the given 50% on Profit Before Tax.

Working Notes

2022-23: PBT = 40,00,000 - 20,00,000 - 4,00,000 = 16,00,000; Tax = 50% x 16,00,000 = 8,00,000; PAT = 8,00,000.

2023-24: PBT = 50,00,000 - 25,00,000 - 5,00,000 = 20,00,000; Tax = 50% x 20,00,000 = 10,00,000; PAT = 10,00,000.

Common Size Statement of Profit and Loss of QLM Ltd.

Particulars	2022-23 (Rs)	2022-23 (%)	2023-24 (Rs)	2023-24 (%)
I. Revenue from Operations	40,00,000	100	50,00,000	100
II. Expenses:
Cost of Revenue from Operations	20,00,000	50	25,00,000	50
Other Expenses	4,00,000	10	5,00,000	10

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Concept

Working Notes

Common Size Statement of Profit and Loss of QLM Ltd.

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