PROFIT PROFIT AND AND LOSSLOSS

INTRODUCTIONBalance sheet shows health of the

organization. Income statement also called as profit and loss statement (P&L), gives company's financial statement for particular period.

This shows if the organization has made profit or loss during particular period.

This slide demonstrates in a simpler manner how profit can be calculated

REVENUE RECOGNITIONREVENUE RECOGNITION

Revenue is the income of the business from its operating activities i.e sale of goods, rendering services or allowing others to use the entity’s resources. It may be called sales, fees, interest, dividend, royalties etc.

When and how should a revenue be recognised ???

General Principles If an inflow of economic benefits results in a

corresponding liability, then it it is not revenue. When consideration is received other than in cash form,

the fair value of the consideration should be received In case of sale of goods revenue can be recognised if

significant risks and rewards are transferred to the buyer e.g ABC Ltd. Sold machinery costing Rs.10.00 lacs

to XYZ Ltd. As per the contract, the machinery has to be installed and commissioned by ABC Ltd.

6. In case of sale on approval basis, revenue should be recognized only when the customer has approved the same or reasonable period has elapsed 7. In case of hire purchase/ installment sales, sale price (excluding interest) should be recognized as revenue 8. In case of services, revenue should be recognized to the extent of services completed. e.g. a) revenue from arranging plays / performances should be recognized when the event is over b) Subscription fees should be proportionately recognized over the period of subscription when the service is provided Royalties should be recognized over the period of agreement. Term fees should be recognized over the term period. Membership fees can be recognized as revenue on receipt but if such fees entitle the members some services, it should be recognized w.r.t timing and value of services provided.

Example of profit and loss Example of profit and loss statementsstatements

CaseMr Patil started poultry as a side business

with 102 birds. He started business with his own saving of Rs.5000/-.

Out of 102 birds, in one month, 7 birds died

ExpensesExpensesFirst batch of birds, following were his expenses

as shown in table below Total Money 2400

Total 2040 rupees

Particulars of Expenses Cost in rupeesBirds (102 nos) 520 rupeesTransportation 20 rupeesBird feed 1200 rupeesMedicine , electricity expenses

90 rupees

Labor charge and capital interest

200 rupees

Birds Mortality 10 rupees

SALESSALES•Total Weight of birds were averaging 1.8 kgs•Due to mortality factor, Mr Patil has 95 birds•Purchasing rate in market is 15 rupees per kg

•Thus Sales in rupees can be calculated as

•No of Birds x Average Weight x Rate per kg of birds•= 95 x 1.8 x 15 •Total Money obtained from Sales = 2565 Rupees

ProfitProfitTotal Profit is Income obtained from Sales and deducting

expenses incurredFrom our earlier slide , Expenses is given below

From Previous Slide , Sales income is given below

Expense = 2040 Rupees

Income from Sales = 2565 rupees

Profit = Income from Sales - Expenses

Profit = 2565 – 2040 = 525 rupees