STATEMENT OF PROFIT AND LOSS

It is a statement that shows the profit earned or loss incurred during the accounting period.

Format of statement of profit and loss is prescribed in Part II of schedule III of Companies Act, 2013.

Format of statement of profit and loss:

Particulars Note no. Amount

1. Revenue from Operations xx

2. Other Incomes xx
3. Total revenue (1+2) xx
4. Expenses
 Cost of material consumed xx
 Purchase of stock in trade xx
 Changes in inventories of finished foods work in progress xx
stock in trade. xx
 Employee benefit expenses xx
 Finance cost xx
 Depreciation and amortization expenses xx
 Other expenses xx
Total Expenses xx
5. Profit before Tax (3-4) xx
6. Less: Tax xx
7. Profit or Loss for the Period (5-6) xx
Heads under Statement of profit and loss:

1. Revenue from operations

2. Other incomes
3. Cost of material consumed
4. Purchase of stock in trade
5. Changes in inventories of finished foods work in progress stock in trade.
6. Employee benefit expenses
7. Finance cost
8. Depreciation and amortization expenses
9. Other expenses.

1. REVENUE FROM OPERATIONS: It means revenue earned by company from its operating
activities.
 For A Manufacturing / Trading / Non- Financing Company revenue from operations will be
Net Sales (Net Sales= Sales – sales return). It also includes sale of scrap.
 For a financing company fees earned, interest and dividend earned will be revenue from
operations.

2. OTHER INCOMES: Incomes earned by company from its other sources i.e. not from its operating
activities are called other incomes.
Other incomes mean income earned by a company from its non operating activities.
 For A Manufacturing / Trading / Non- Financing Company other incomes will be:
 Gain on sale of assets.
 Bad debts recovered
 Interest earned on fixed deposit
 Dividend earned by non-financing company.
 For a financing company other incomes will be:
EXPENSES:
1. COST OF MATERIAL CONSUMED: ‘Material’ means raw material and other materials used in
manufacturing of goods.
 Cost of material consumed means cost of raw materials and other materials
consumed/used in manufacturing process.
 Cost of material consumed= Opening Stock of Materials + Purchase Of Raw Materials –
Closing Stock.

2. Purchase of Stock In Trade: It means goods purchased for reselling.

For example:
 If a company purchases paper for re-sale, it will be shown as purchase of stock in trade.
 But if paper is purchased for manufacturing copies, it will be shown under cost of
material consumed.

3. Changes In Inventories of Finished Foods, Work In Progress and Stock In Trade: It means
difference between the opening and closing stock of Finished Foods, Work In Progress and Stock
In Trade.

Particulars Opening Inventory Closing Inventory

Finished goods 250000 200000
Work In Progress 450000 500000
Stock In Trade 750000 700000

Calculation of Changes in Inventories of Finished Foods, Work In Progress and Stock In Trade will be
shown in notes to accounts.
(a) Finished Goods
Opening Inventory 250000
(-) Closing Inventory (200000) 50000

(b) Work In Progress

Opening Inventory 450000
(-) Closing Inventory (500000) (50000)

(c) Stock In Trade

Opening Inventory 750000
(-) Closing Inventory (700000) 50000

Total 50000

Total of 50000 will be shown in statement of profit and loss.

4. EMPLOYEE BENEFIT EXPENSES: It means payments made to employees for their benefit.
 It includes:
Wages
Salaries
Bonus
Leave Encashment
Staff Welfare Expenses
Employee Compensation Expenses
Gratuity
Medical Expenses

All the above stated amounts will be shown in Notes to Accounts under Employee Benefit Expense
and Total amount will be shown in the Statement of Profit And Loss.

5. FINANCE COST: It means the cost incurred by a company on the BORROWINGS.

Borrowings include:
 Term Loans,
 Bank Overdraft,
 Cash Credit Limit,
 Public Deposit,
 Debentures and Bonds.
FINANCE COST includes:

 Interest paid on borrowings.

 It also includes the expenses incurred by the company for borrowing.
Example:
 Loan processing fees.
 Discount on issue of debentures.
 Premium payable on redemption of debentures.

BANK CHARGES are not included in finance cost but are shown under other expenses as they are the
expenses for the services availed from the banks.

6. DEPRECIATION AND AMORTIZATION EXPENSES:

 Depreciation is the fall in the value of tangible asset over the time. Depreciation is allowed on all
tangible assets as building machinery, furniture etc.
 Amortization is the cost of intangible asset written off over their estimated useful life.
Amortization is allowed on all intangible assets as on patents, trademark, goodwill etc.

Details of Depreciation and Amortization are shown in notes to accounts and total amount will be
shown in statement of profit and loss.

7. OTHER EXPENSES: The expenses that are not shown in any other head, comes under OTHER
EXPENSES.

It includes:

 Carriage inward & carriage outward

 Bank charges
 Selling and administrative expenses.
 Marketing expenses
 Courier expenses
 Internet expenses audit fees
 Telephone expenses
 Electricity charges
 Rent
 Sundry expenses
 Entertainment expenses
 Conveyance expense.