Question

Prepare the format of the statement of profit and loss and explain its items up to the ascertainment of profit before tax.

Answer 1

Particulars	Note No.	Figures for the Current Reporting Period (₹)	Figures for the Previous Reporting Period (₹)
I. Revenue from Operations	1	xxx	xxx
II. Other Income	2	xxx	xxx
III. Total Revenue (I + II)		xxx	xxx
IV. Expenses:
(a) Cost of Materials Consumed	3	xxx	xxx
(b) Purchases of Stock-in-Trade		xxx	xxx
(c) Changes in Inventories of Finished Goods, Work-in-Progress, and Stock-in-Trade	4	xxx	xxx
(d) Employee Benefits Expense	5	xxx	xxx
(e) Finance Costs	6	xxx	xxx
(f) Depreciation and Amortisation Expense		xxx	xxx
(g) Other Expenses	7	xxx	xxx
Total Expenses (IV)		xxx	xxx
V. Profit Before Exceptional and Extraordinary Items and Tax (III - IV)		xxx	xxx
VI. Exceptional Items		xxx	xxx
VII. Profit Before Extraordinary Items and Tax (V - VI)		xxx	xxx
VIII. Extraordinary Items		xxx	xxx
IX. Profit Before Tax (VII - VIII)		xxx	xxx

Explanation of each item (up to Profit before Tax):

• Revenue from operations: Net sales/operating income from the entity’s principal business activities (sales of goods or services), net of returns, discounts and trade allowances. Recognised in accordance with applicable revenue recognition rules.
• Other income: Non‑operating income such as interest income, dividend income, rent, gain on sale of non‑current assets, foreign exchange gains, etc. These are reported separately from operating revenue.
• Total revenue: Sum of operating revenue and other income (I + II).
• Cost of materials consumed: Direct cost of raw materials and components used in production during the period (for manufacturing entities). Includes opening stock, purchases less closing stock adjustments.
• Purchases of stock‑in‑trade: Cost of goods purchased for resale (trading businesses). Reported instead of/in addition to Cost of materials where applicable.
• Changes in inventories of finished goods, WIP and stock‑in‑trade: Movement in closing vs opening inventories of finished goods, work‑in‑progress and goods held for resale. An increase in inventories is deducted from expenses (or shown as positive change), a decrease increases cost of sales. This adjusts cost to match production/sales.
• Employee benefit expenses: Salaries, wages, bonus, employer contributions to social security/retirement plans, staff welfare and other personnel costs.
• Finance costs: Interest on borrowings, bank charges, interest on lease liabilities, amortisation of borrowing costs, and similar borrowing‑related expenses. Reported separately because they relate to financing, not operations.
• Depreciation and amortisation expenses: Systematic allocation of the cost of property, plant & equipment and intangible assets over their useful lives for the period. Shown separately to indicate use of long‑lived assets.
• Other expenses: Selling, distribution, marketing, administrative and other operating expenses not captured above (utilities, repairs & maintenance, professional fees, insurance, etc.).
• Total expenses: Sum of all expense line items.
• Profit before tax (PBT): Total revenue (III) less Total expenses (IV). This is the profit earned from all activities before provision for income tax. Use this line as the starting point for tax provision and for cash‑flow operating adjustments. If preparing PBT from retained earnings/surplus instead of the Statement of Profit and Loss, add back appropriations (dividends, transfers to reserves) and provisions for tax as required to reconcile; see working note procedures.