Schedule III Statement of Profit and Loss Builder
The Statement of Profit and Loss presents an enterprise's financial performance by measuring revenue earned against expenses incurred over an accounting period. Under Part II of Schedule III (Companies Act, 2013), Indian companies must classify expenses by nature (materials, employee benefits, finance costs, depreciation) rather than function. Use this tool to generate statutory Division I statements or download customizable Excel, PDF, and Word templates.
1. Statutory Structure of Schedule III Part II (Division I)
Schedule III Division I Part II prescribes the strict order of presentation for the Statement of Profit and Loss for non-Ind AS companies:
| Item | Statutory Particulars | Accounting Standard Basis & Statutory Inclusions |
|---|---|---|
| I. | Revenue from operations | Sale of products, sale of services, and other operating revenues (net of GST/trade discounts). |
| II. | Other income | Interest on fixed deposits, dividend income, net gain on sale of investments, foreign exchange differences. |
| III. | Total Revenue (I + II) | Sum of operating turnover and other income. |
| IV. | Expenses: | Operating and administrative costs classified strictly by nature: |
| • Cost of materials consumed | Raw materials, components, and direct consumption items. | |
| • Purchases of Stock-in-Trade | Finished goods purchased for direct resale without processing. | |
| • Changes in inventories of finished goods, work-in-progress and Stock-in-Trade | Opening inventory minus closing inventory differential. | |
| • Employee benefits expense | Salaries, wages, bonus, PF/gratuity contributions, and staff welfare. | |
| • Finance costs | Interest expense, loan processing fees, bank borrowing charges. | |
| • Depreciation and amortisation expense | Depreciation on PPE and amortisation of intangible assets. | |
| • Other expenses | Rent, rates, taxes, auditor remuneration, legal and professional fees. | |
| IV. | Total expenses | Sum of all expense line items classified by nature. |
| V. | Profit before exceptional and extraordinary items and tax (III − IV) | Operating profit before exceptional adjustments. |
| VI. | Exceptional items | Items of income or expense within ordinary activities that require separate disclosure by virtue of size or incidence (AS-5). |
| VII. | Profit before extraordinary items and tax (V − VI) | Subtotal after exceptional items. |
| VIII. | Extraordinary items | Events clearly distinct from ordinary activities (e.g. losses from unforeseen natural calamities) (AS-5). |
| IX. | Profit before tax (VII − VIII) | Statutory Profit Before Tax (PBT). |
| X. | Tax expense: | Provisions for tax under the Income-tax Act, 1961 and AS-22: |
| (1) Current tax | Income tax payable for the current financial year. | |
| (2) Deferred tax | Deferred tax charge or credit arising from timing differences under AS-22. | |
| XI. | Profit/(Loss) for the period from continuing operations (IX − X) | Operating result from ongoing business activities after tax. |
| XII. | Profit/(loss) from discontinuing operations | Pre-tax result attributable to discontinuing operations under AS-24. |
| XIII. | Tax expense of discontinuing operations | Current and deferred tax specifically attributable to discontinuing operations. |
| XIV. | Profit/(loss) from discontinuing operations (after tax) (XII − XIII) | Net after-tax result from discontinuing operations. |
| XV. | Profit/(Loss) for the period (XI + XIV) | Final statutory bottom-line Profit After Tax (PAT) transferred to Reserves & Surplus. |
| XVI. | Earnings per equity share: | Calculated in accordance with Accounting Standard 20 (AS-20): |
| (1) Basic (₹) | Profit attributable to equity shareholders divided by weighted average number of equity shares. | |
| (2) Diluted (₹) | EPS adjusted for potential dilution from stock options, warrants, or convertible instruments. |
2. The Retained Earnings and Reserves & Surplus Bridge
A common trap in corporate reporting is assuming that Current Year Profit After Tax (PAT) automatically equals the change in Reserves and Surplus on the Balance Sheet. In statutory reality, the reserves roll-forward must account for:
- Opening Surplus in Statement of Profit & Loss brought forward from the preceding financial year.
- Add: Profit for the Year (PAT) transferred from the Statement of Profit and Loss.
- Less: Interim and Final Dividends declared or paid.
- Less: Statutory Transfers to Reserves (such as Debenture Redemption Reserve or General Reserve).
- Less: Bonus Shares Issued capitalised out of retained earnings or securities premium.
3. Disclosures for Section 8 (Non-Profit) Entities
Section 8 companies prepare an Income and Expenditure Account instead of a Profit and Loss Account. Operating receipts predominantly comprise grants, donations, subscriptions, and project funds rather than commercial turnover. Surpluses cannot be distributed as dividends to members under Section 8(1)(b) of the Companies Act, 2013 and must be applied exclusively towards promoting charitable objects.
4. Frequently Asked Questions (FAQs)
Can an Indian company classify expenses by function (e.g. administrative, selling, distribution)?
No. Companies Act 2013 Schedule III Division I specifically requires expenses to be classified by nature (cost of materials, employee benefits, finance costs, depreciation, and other expenses). Functional classifications (like Cost of Goods Sold or Selling & Distribution) used in US GAAP or traditional management accounting are not permitted on the face of the Schedule III statement.
What is the difference between Exceptional and Extraordinary items?
Under AS-5, Exceptional items are items of income or expense that arise from ordinary activities of the enterprise but are of such size, nature, or incidence that their disclosure is relevant to explain performance (e.g. disposal of fixed assets or restructuring). Extraordinary items are non-recurring events that are clearly distinct from ordinary activities (e.g. losses from natural calamities or government expropriation).
Are comparative figures required for the previous financial year?
Yes. Schedule III General Instructions mandate comparative figures for the preceding reporting period for all items in the Statement of Profit and Loss and Notes to Accounts, except for the first financial statements after incorporation.