The following information was extracted from the Statement of Profit and Loss of Chaman Ltd. for the year ended 31st March, 2025 : | Particulars | Note No. | 31.3.2025 (₹) | 31.3.2024 (₹) | | --- | --- | --- | --- | | Revenue from operations | | 40,00,000 | 32,00,000 | | Employee Benefit Expenses | | 20,00,000 | 16,00,000 | | Other Expenses | | 2,00,000 | 4,00,000 | Tax Rate 50% Prepare a Comparative Statement of Profit and Loss.

> [!TLDR] > Chaman Ltd.'s Profit After Tax rose from ₹6,00,000 (2024) to ₹9,00,000 (2025), an absolute increase of ₹3,00,000 (50%), driven by higher revenue and lower other expenses despite increased employee costs. --- ## Concept and Treatment A **Comparative Statement of Profit and Loss** presents the profit and loss account for two or more periods side-by-side, showing both the **absolute change** (₹) and the **percentage change** (%) for each line item. This horizontal analysis reveals trends—whether revenue is growing, expenses are being controlled, and profitability is improving or deteriorating. The structure follows the standard Statement of Profit and Loss format: 1. **Revenue from Operations** (sales/turnover) 2. Less: **Operating Expenses** (employee benefits, other expenses, etc.) 3. Equals: **Profit Before Tax** 4. Less: **Tax Expense** (at the given rate, 50% here) 5. Equals: **Profit After Tax** For each item, we compute: - **Absolute Change** = Current Year figure − Previous Year figure - **Percentage Change** = $\frac{\text{Absolute Change}}{\text{Previous Year figure}} \times 100$ A positive change indicates an increase; a negative change indicates a decrease. The percentage change is always calculated with reference to the **earlier year** (2024 in this case). --- ## Solution ### Comparative Statement of Profit and Loss **for the year ended 31st March, 2025** | **Particulars** | **31.3.2025 (₹)** | **31.3.2024 (₹)** | **Absolute Change (₹)** | **Percentage Change (%)** | |---|---:|---:|---:|---:| | **Revenue from Operations** | 40,00,000 | 32,00,000 | +8,00,000 | +25.00 | | **Less: Operating Expenses** | | | | | | Employee Benefit Expenses | 20,00,000 | 16,00,000 | +4,00,000 | +25.00 | | Other Expenses | 2,00,000 | 4,00,000 | −2,00,000 | −50.00 | | **Total Operating Expenses** | **22,00,000** | **20,00,000** | **+2,00,000** | **+10.00** | | **Profit Before Tax** | **18,00,000** | **12,00,000** | **+6,00,000** | **+50.00** | | **Less:

The following information was extracted from the Statement of Profit and Loss of Chaman Ltd. for the year ende

Question

The following information was extracted from the Statement of Profit and Loss of Chaman Ltd. for the year ended 31st March, 2025 :

Particulars	31.3.2025 (₹)	31.3.2024 (₹)
Revenue from operations	40,00,000	32,00,000
Employee Benefit Expenses	20,00,000	16,00,000
Other Expenses	2,00,000	4,00,000

Tax Rate 50% Prepare a Comparative Statement of Profit and Loss.

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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 Comparative Statement of Profit and Loss shows the absolute change and percentage change in each item across two periods. We first compute Profit Before Tax (PBT) for each year, then apply the 50% tax rate to arrive at Profit After Tax (PAT).

Working:

For the year ended 31.3.2025:

Revenue from operations = ₹40,00,000
Less: Employee Benefit Expenses = ₹20,00,000
Less: Other Expenses = ₹2,00,000
Profit Before Tax = ₹40,00,000 − ₹20,00,000 − ₹2,00,000 = ₹18,00,000
Tax @ 50% = ₹9,00,000
Profit After Tax = ₹9,00,000

For the year ended 31.3.2024:

Revenue from operations = ₹32,00,000
Less: Employee Benefit Expenses = ₹16,00,000
Less: Other Expenses = ₹4,00,000
Profit Before Tax = ₹32,00,000 − ₹16,00,000 − ₹4,00,000 = ₹12,00,000
Tax @ 50% = ₹6,00,000
Profit After Tax = ₹6,00,000

Now we prepare the comparative statement with absolute change and percentage change columns:

Comparative Statement of Profit and Loss

for the years ended 31st March, 2025 and 31st March, 2024

Particulars	31.3.2025 (₹)	31.3.2024 (₹)	Absolute Change (₹)	% Change
Revenue from operations	40,00,000	32,00,000	8,00,000	25.00
Less: Employee Benefit Expenses	20,00,000	16,00,000	4,00,000	25.00

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Chaman Ltd.'s Profit After Tax rose from ₹6,00,000 (2024) to ₹9,00,000 (2025), an absolute increase of ₹3,00,000 (50%), driven by higher revenue and lower other expenses despite increased employee costs.

Concept and Treatment

A Comparative Statement of Profit and Loss presents the profit and loss account for two or more periods side-by-side, showing both the absolute change (₹) and the percentage change (%) for each line item. This horizontal analysis reveals trends—whether revenue is growing, expenses are being controlled, and profitability is improving or deteriorating.

The structure follows the standard Statement of Profit and Loss format:

Revenue from Operations (sales/turnover)
Less: Operating Expenses (employee benefits, other expenses, etc.)
Equals: Profit Before Tax
Less: Tax Expense (at the given rate, 50% here)
Equals: Profit After Tax

For each item, we compute:

Absolute Change = Current Year figure − Previous Year figure
Percentage Change = $\frac{\text{Absolute Change}}{\text{Previous Year figure}} \times 100$

A positive change indicates an increase; a negative change indicates a decrease. The percentage change is always calculated with reference to the earlier year (2024 in this case).

Solution

Comparative Statement of Profit and Loss

for the year ended 31st March, 2025

Particulars	31.3.2025 (₹)	31.3.2024 (₹)	Absolute Change (₹)	Percentage Change (%)
Revenue from Operations	40,00,000	32,00,000	+8,00,000	+25.00
Less: Operating Expenses
Employee Benefit Expenses	20,00,000	16,00,000	+4,00,000	+25.00
Other Expenses	2,00,000	4,00,000	−2,00,000	−50.00
Total Operating Expenses	22,00,000	20,00,000	+2,00,000	+10.00
Profit Before Tax	18,00,000	12,00,000	+6,00,000	+50.00
Less: Tax @ 50%	9,00,000	6,00,000	+3,00,000	+50.00
Profit After Tax	9,00,000	6,00,000	+3,00,000	+50.00

Working Notes

W.N. 1: Profit Before Tax

For 2025:

\text{Profit Before Tax} = \text{Revenue} - \text{Total Operating Expenses} = 40,00,000 - 22,00,000 = ₹18,00,000

For 2024:

\text{Profit Before Tax} = 32,00,000 - 20,00,000 = ₹12,00,000

Absolute Change = ₹18,00,000 − ₹12,00,000 = ₹6,00,000

Percentage Change = $\frac{6,00,000}{12,00,000} \times 100 = \mathbf{50\%}$

W.N. 2: Tax Expense

Tax rate is 50% of Profit Before Tax.

For 2025:

\text{Tax} = 50\% \times 18,00,000 = ₹9,00,000

For 2024:

\text{Tax} = 50\% \times 12,00,000 = ₹6,00,000

Absolute Change = ₹9,00,000 − ₹6,00,000 = ₹3,00,000

Percentage Change = $\frac{3,00,000}{6,00,000} \times 100 = \mathbf{50\%}$

W.N. 3: Profit After Tax

For 2025:

\text{PAT} = 18,00,000 - 9,00,000 = ₹9,00,000

For 2024:

\text{PAT} = 12,00,000 - 6,00,000 = ₹6,00,000

Absolute Change = ₹9,00,000 − ₹6,00,000 = ₹3,00,000

Percentage Change = $\frac{3,00,000}{6,00,000} \times 100 = \mathbf{50\%}$ …

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Concept and Treatment

Solution

Comparative Statement of Profit and Loss

Working Notes

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