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1.4 Analysis of Financial Statements—CBSE XII
STATEMENT OF PROFIT & LOSS
8. Revenue from Operations It is the revenue earned by the company from its operating
activities, i.e., business activities carried on by the company to
earn profit.
9. Other Income It is the revenue earned by the company from the sources other
than its operating activities.
10. Cost of Materials Consumed It is the aggregate of cost of raw materials and other materials
used in manufacture of goods.
11. Purchase of Stock-in-Trade It means purchases of goods for resale, i.e., goods purchased on
which no further process is carried before sale.
12. Changes in Inventories of It is the sum of difference between the opening inventories and
Finished Goods, WIP and closing inventories of Finished Goods, WIP and Stock-in-Trade.
Stock-in-Trade It is shown separately in the Notes to Accounts as single amount on
the face of the Statement of Profit & Loss.
13. Employees Benefit Expenses These are the expenses incurred for the benefit of employees.
Examples are: wages, salaries, bonus, staff welfare and medical
reimbursement, etc.
14. Finance Costs These are the expenses of the company incurred to borrow, i.e.,
loans taken by it and cost incurred to service the borrowings.
15. Depreciation and Amortisation Depreciation is allocation of cost of fixed asset over its useful
Expenses life. In other words, it is the fall in the value of fixed assets due to
its usage or efflux of time or obsolescence. Amortisation is the term
associated with writing off intangible assets.
16. Other Expenses Expenses that do not fall in the above classifications are shown
as Other Expenses.
Expenses shown under Employees Benefit Expenses and Other Expenses may be further shown as
Direct and Indirect Expenses. Other Expenses may be shown under different heads, say Administrative
Expenses, Selling and Distribution Expenses and General Expenses, etc.

CHAPTER SUMMARY

• The annual accounts of a company consist of Balance Sheet as at the end of the financial year, Statement
of Profit & Loss for the financial year, Notes to Accounts giving details of items in the Balance Sheet
and Statement of Profit & Loss and Cash Flow Statement. These are collectively known as Financial
Statements.
• The form and content of Balance Sheet and Statement of Profit & Loss are prescribed in Part I and
Part II of Schedule III of the Companies Act, 2013 respectively.
• A single amount is shown against each line item of the Balance Sheet and Statement of Profit & Loss
while the details are given in the Notes to Accounts of the line item.
• Balance Sheet is a statement which shows the financial position of the company as at the end of the
financial year.
• Statement of Profit & Loss is a statement which shows the profit earned or loss incurred during the
financial year.
• Appropriation of Profit: Profit is appropriated out of ‘Surplus, i.e., Balance in Statement of Profit &
Loss’ under Reserves and Surplus. Profit for the year (as per Statement of Profit & Loss) is added to the
opening balance of Surplus, i.e., Balance in Statement of Profit & Loss and thereafter appropriation is
made towards other reserves (say Debentures Redemption Reserve) or Dividend declared (approved) by
the shareholders. The appropriations made towards other reserves are added to that reserve. Proposed
Dividend for the Current Year is not provided (accounted) in the books but is shown in the Notes
to Accounts as Contingent Liability.