Statement of Profit and Loss Format as per Schedule III

Understand Statement of Profit and Loss Format

Key rules to remember

Total income

Total income = Revenue from operations + Other income

Both are shown as separate line items. Do not merge them.

Total expenses (nature method)

Cost of materials consumed + Purchases of stock-in-trade ± Changes in inventories + Employee benefits expense + Finance costs + Depreciation and amortisation expense + Other expenses

An increase in inventories is deducted from expenses. A decrease is added.

Profit before exceptional items and tax

Total income − Total expenses

Exceptional items are not part of total expenses.

Profit before tax

Profit before exceptional items and tax − Exceptional items

An exceptional gain is added. An exceptional loss is deducted.

Profit from continuing operations

Profit before tax − Tax expense (current tax + deferred tax)

Show current tax and deferred tax separately.

Profit for the period

Profit from continuing operations + Profit/(loss) from discontinued operations after tax

Discontinued operations appear as a single amount (Ind AS 1 para 82(ea)).

Total comprehensive income

Profit for the period + Other comprehensive income (net of tax)

OCI is grouped into items not reclassified and items reclassified to profit or loss (para 82A). Income tax on each OCI item is disclosed on the face or in the notes (para 90).

Basic EPS

Profit attributable to equity shareholders ÷ Weighted average number of equity shares

Show basic and diluted EPS at the end of the statement. Detailed EPS rules are in Ind AS 33.

How to solve Statement of Profit and Loss Format questions

1. 1Check which format is wanted: Schedule III Division I (Accounting Standards) or Division II (Ind AS). OCI is asked only in the Ind AS format.
2. 2Sort every given figure into one bucket: revenue, other income, an expense line, exceptional item, tax, discontinued operations or OCI. Leave out items that belong only to the Balance Sheet, such as dividends paid and transfers to reserves.
3. 3Work out each expense line. Cost of materials consumed = opening stock + purchases − closing stock. Changes in inventories = opening stock − closing stock of finished goods, WIP and stock-in-trade.
4. 4Write the statement in the fixed order: income, expenses, profit before exceptional items and tax, exceptional items, profit before tax, tax, discontinued operations, profit for the period, OCI, total comprehensive income, EPS.
5. 5Show OCI in two groups, items not reclassified and items reclassified. Show the related income tax against each group.
6. 6Calculate EPS from profit for the period and the weighted average number of shares. Show basic and diluted if both are given.
7. 7Add a short note for any figure that needs working, such as stock adjustments, and cross-check that each subtotal agrees.

Quickest way: Subtotal ladder method

Common mistakes in Statement of Profit and Loss Format

• Showing exceptional items inside Other expenses or Other income.

  Students treat any unusual item as an ordinary expense.

  Fix: Show them on a separate line after profit before exceptional items and tax. Disclose the nature of the item.

• Showing an 'extraordinary item' line in an Ind AS statement.

  The older format had such a line, and old textbooks still show it.

  Fix: Ind AS 1 (para 87) bars extraordinary items in the statement and in the notes. Use exceptional items only if the item qualifies.

• Adding the full increase in stock to expenses, or getting the sign wrong in 'Changes in inventories'.

  Students mix up opening and closing stock.

  Fix: Changes in inventories = opening stock − closing stock. A positive result is added to expenses. A negative result is shown in brackets and reduces expenses.

• Leaving OCI out, or putting it before profit for the period.

  Students think profit for the period is the final line.

  Fix: Profit for the period comes first. OCI comes after it. Total comprehensive income is the sum of the two.

• Mixing up OCI items that will and will not be reclassified.

  Students memorise examples without the rule.

  Fix: Use the test in para 82A: does another Ind AS say the item will later move to profit or loss? Remeasurement of a defined benefit plan and revaluation surplus on property, plant and equipment are not reclassified. A cash flow hedge reserve movement is reclassified when conditions are met.

• Including dividends, transfer to reserves or proposed dividend in the statement.

  The old format had an appropriation section.

  Fix: The Schedule III statement ends with profit, OCI and EPS. Dividends and transfers go to the Statement of Changes in Equity and the notes.

Worked examples