Question

Identify placement of items on a fully classified statement of profit or loss.

Explain where each of these items would appear on a fully classified statement of profit or loss: interest revenue, cost of sales, depreciation expense, sales returns and allowances, purchase returns and allowances, discount received, and discount allowed

Answer 1

Statement of profit & loss
Particulars	Rs.	Rs.	Rs.
1. GROSS SALES
Cash sales		x
Credit sales		x
		x
Less : Sales returns & allowances		x
2. NET SALES			x
3. LESS: COST OF SALES/ COST OF GOODS SOLD
A) Opening Stock :
Raw Materials	x
Work in progress	x
Finished products/Goods	x	x
B) Purchase of Raw Materials	x
Less: Purchase returns & allowances	x	x
C) Direct & manufacturing expenses :
Freight/Carriage Inwards	x
Commission on purchases	x
Wages & Bonus to workers	x
Factory overheads	x	x
D)Less: Closing stock :
Raw Materials	x
Work in progress	x
Finished products/Goods	x	x
		x
E) Sale of scrap/Wastage		x	x
4. GROSS PROFIT (2-3)			x
5. ADD: OPERATING INCOME
Bad debts recovered		x
Discount received		x
Commission received		x	x
6. LESS : OPERATING EXPENSES
a) Administration expenses :
Salaries to office staff	x
Office rent	x
Depreciation expense	x
Office stationery	x	x
b) Selling & distribution expenses :
Advertisement	x
Sales commission	x
Showroom expenses	x
Travelling expenses	x
Discount allowed (Cash)	x	x
c) Financial expenses :
Interest paid on debentures	x
Interest paid on term loan	x
Interest paid on bank overdraft	x	x	x
7. OPERATING NET PROFIT (4+5-6)			x
8. NON-OPERATING INCOME
Interest revenue	x
Dividend on investments	x
Rent received	x
Profit on sale of fixed assets/ investments	x	x
9. LESS : Non-Operating Expenses & Losses :
Loss by fire, theft, accident etc	x
Loss on sale of fixed assets/ investment	x
Preliminary expenses written off	x	x	x
10. NET PROFIT BEFORE TAX (7+8-9)			x
11. LESS : PROVISION FOR INCOME TAX			x
12. NET PROFIT AFTER TAX (10-11)			x
13. ADD : OPENING BALANCE OF P & L A/C			x
			x
14. LESS : APPROPRIATIONS :
Transfer to reserves		x
Interim dividend		x
Proposed dividend		x	x
15. RETAINED EARNINGS (13-14)			x

Interest revenue- Would be appeared on statement of profit & loss under head of Non-operating income.

Cost of sales - Would be appeared on statement of profit & loss and deducted from Net sales.

Depreciation expense - Would be appeared on statement of profit & loss and comes under Administration expenses.

Sales returns & allowances - Would be appeared on statement of profit & loss and deducted from Gross sales.

Purchase returns and allowances - Would be appeared on statement of profit & loss deducted from Purchase of raw materials.

Discount received - Would be appeared on statement of profit & loss & added in Operating income.

Discount allowed - Would be appeared on statement of profit & loss & it is included in Selling and distribution expenses.