Accountancy · Ch 7 — Financial Statements of a Company
Form and content of Statement of Profit and Loss
Form and content of Statement of Profit and Loss
The Statement of Profit and Loss is the second component of a company's financial statements. While a sole proprietor's Profit and Loss account simply shows net profit or loss, a company's version is far more detailed. It is prepared strictly according to the format prescribed in Schedule III of the Companies Act, 2013. This format is a vertical statement, not a traditional T-shaped account.
The purpose is to show how the profit for the period was arrived at, step-by-step, by classifying all incomes and expenses into specific categories. The final figure is the "Profit for the period," from which Earnings Per Share (EPS) is then calculated.
The Prescribed Format
The format is divided into two main parts: the main body of the Statement and the Notes to Accounts. The main body shows only the totals for each major head, while the detailed breakdown is given in the Notes.
Statement of Profit and Loss for the year ended ______________
| Particulars | Note No. | Figures as at the end of Current Reporting Period (₹) | Figures as at the end of Previous Reporting Period (₹) |
|---|---|---|---|
| I. Revenue from operations | |||
| II. Other income | |||
| III. Total Revenue (I + II) | |||
| IV. Expenses: | |||
| Cost of materials consumed | |||
| Purchases of stock-in-trade | |||
| Changes in inventories of finished goods, Work-in-progress and stock-in-trade | |||
| Employee benefits expense | |||
| Finance costs | |||
| Depreciation and amortisation expense | |||
| Other expenses | |||
| Total expenses | |||
| V. Profit before extraordinary items and tax (III - IV) | |||
| VI. Exceptional items | |||
| VII. Profit before extraordinary items and tax (V - VI) | |||
| VIII. Extraordinary items | |||
| IX. Profit before tax (VII - VIII) | |||
| X. Tax expense: | |||
| (1) Current tax | |||
| (2) Deferred tax | |||
| XI. Profit/(Loss) for the period from continuing operations (IX - X) | |||
| XII. Profit/(Loss) from discontinuing operations | |||
| XIII. Tax expense of discontinuing operations | |||
| XIV. Profit/(Loss) from Discontinuing operations (after tax) (XII - XIII) | |||
| XV. Profit/(Loss) for the period (XI + XIV) | |||
| XVI. Earnings per equity share: | |||
| (1) Basic | |||
| (2) Diluted |
The format is a vertical statement. Every item of income and expense is classified under a specific head. The detailed breakup of each head is not shown in the main statement but in the "Notes to Accounts" referenced by the Note No. column.
Explanation of Each Item
1. Revenue from Operations
This is the primary source of income from the company's main business activities. It includes:
- Sale of products (for a manufacturing or trading company).
- Sale of services (for a service company).
- Other operating revenues (e.g., scrap sales, commission earned from core business).
- For a finance company (like a bank or NBFC), revenue from operations includes interest income, dividend income, and income from other financial services.
2. Other Income
This includes income that is not from the company's main business operations. Examples are:
- Interest income (for a non-finance company).
- Dividend income.
- Net gain on sale of investments.
- Other non-operating income (e.g., profit on sale of a fixed asset, rental income).
3. Expenses
These are the costs incurred to earn the revenue. They are classified into specific heads:
-
(a) Cost of Materials Consumed: This applies to manufacturing companies. It represents the cost of raw materials and other materials used in production. It is calculated as: Opening Inventory of Raw Materials + Purchases - Closing Inventory of Raw Materials.
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(b) Purchases of Stock-in-Trade: This applies to trading companies. It is the cost of goods purchased for the purpose of resale.
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(c) Changes in Inventories of Finished Goods, Work-in-Progress, and Stock-in-Trade: This is the difference between the opening and closing stock of these items.
- If Closing Stock > Opening Stock, the change is negative (a decrease in expense, effectively added to profit).
- If Opening Stock > Closing Stock, the change is positive (an increase in expense, reducing profit).
- The formula is: Opening Inventory - Closing Inventory.
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(d) Employee Benefits Expense: All expenses related to employees, such as salaries, wages, bonus, leave encashment, staff welfare, and provident fund contribution. This can be further categorised into direct (e.g., factory wages) and indirect (e.g., office salaries). …