In what chronological order should the following steps and figures be derived when preparing a company's Statement of Profit or Loss (Income Statement) in accordance with standard accounting principles?
- 1Deduct Cost of Sales from Turnover (Revenue) to determine Gross Profit.
- 2Subtract Operating Expenses (such as distribution and administrative expenses) from Gross Profit to arrive at Operating Profit.
- 3Deduct Debenture Interest and Finance Costs from Operating Profit to calculate Profit Before Taxation (PBT).
- 4Subtract the corporate taxation provision from Profit Before Taxation to obtain Profit After Tax (Net Profit for the Year).
- 5Deduct proposed dividends and transfers to general reserves from Net Profit for the Year to find Retained Earnings carried forward.
Cevap
The correct presentation sequence is: 1) Gross Profit calculation, 2) Operating Profit calculation, 3) Profit Before Taxation calculation, 4) Profit After Tax calculation, and 5) Determination of Retained Profit for the year.
The Statement of Profit or Loss follows a standard vertical presentation sequence: Trading section (Turnover minus Cost of Sales gives Gross Profit), followed by the Profit or Loss section (Gross Profit minus Operating Expenses gives Operating Profit), deducting Finance Costs to yield Profit Before Tax, deducting Tax Provision to give Profit After Tax, and finally appropriating dividends and reserves to find Retained Earnings.
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Structure and Preparation Sequence of Company Final Accounts (Statement of Profit or Loss)
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