The Profit And Loss Appropriation Account For A Sole Trader : The net profit is the entitlement of the

e owner and it is accordingly added to capital. Any drawings are deducted from capital

However for a Limited Company, a typical Profit And Loss Appropriation Account will look like below: Profit And Loss Appropriation Account for XYZ Limited Co. Note 1 2 Net profit for the year Less: Corporation Tax Net Profit After Tax Add: Profit & loss account balance brought forward Less: 3 4 5 Transfer to General reserve Dividends: Preference Ordinary Profit And loss account balance carried forward Salient Points to note: Dont forget that the appropriation account forms part of the accounting system so the dual aspect concept applies to it. 1 2 3 4 5 The net profit will be the figure entered in the profit and loss account There needs to be a tax payable account created for corporation.(Dr:P&L Appropriation Cr: Corporation Tax Payable Transfers to reserves will be added to any existing amounts in these reserve account resulting in an increased total being shown Dividend paid will result in a reduction in cash. Dividend proposed at the year end but as yet unpaid will need to be reflected in a current liability Any unappropriated profit will be carried forward as a balance on the profit and loss account. It appears in the balance sheet at the end of the period, as part of reserves and will be carried forward as the opening balance on the appropriation account for the next period. $

Illustration

Question: A company, XYZ Ltd has a net profit of $500,000. A balance of $100,000 was carried forward from previous years. Corporation tax is expected to be $200,000. $50,000 is to be transferred to a general reserve; $160,000 is to be paid as an ordinary dividend and $50,000 as a preference dividend Solution: Profit And Loss Appropriation Account for XYZ Limited Co. $ Net profit for the year Less: Corporation Tax Net Profit After Tax Add: Profit & loss account balance brought forward Less: Transfer to General reserve Dividends: Preference Ordinary Profit And loss account balance carried forward 50,000 160,000 210,000 260,000 140,000 50,000 100,000 200,000 300,000 $ $ 500,000

Profit & Loss Account for the year

ended 31st March, 2007

For the year ended 31st March, 2007 (Rs. in Crores)

For the year ended 31st March, 2006 (Rs. in Crores)

IA. GROSS INCOME

19841.54

16510.51

IB. NET INCOME Gross Sales Less: Excise Duties and Taxes on Sales of Products and Services Net Sales Other Income 19505.05 7135.75 16224.43 6433.90

12369.30 336.49 12705.79

9790.53 286.08 10076.61

II. OTHER EXPENDITURE Raw Materials etc. Manufacturing, Selling etc. Expenses Depreciation 5384.86 3031.31 362.92 8779.09 III. PROFIT Profit before Taxation and Exceptional items Provision for Taxation Profit after Taxation before Exceptional items Exceptional items (net of tax) Profit after Taxation Profit brought forward Available for appropriation 3926.70 1226.73 2699.97 2699.97 562.06 3262.03 3269.19 988.82 2280.37 (45.02) 2235.35 611.41 2846.76 3983.23 2491.85 332.34 6807.42

IV. APPROPRIATIONS General Reserve Proposed Dividend Income Tax on Proposed Dividend Profit Carried Forward 1250.00 1166.29 198.21 647.53 3262.03 1150.00 995.12 139.58 562.06 2846.76

Earnings Per Share (Face Value Rs. 1.00 each) On Profit after Taxation before Exceptional items Basic Diluted On Profit after Taxation Basic Diluted Rs. 7.19 Rs. 7.16 Rs. 5.96 Rs. 5.93 Rs. 7.19 Rs. 7.16 Rs. 6.08 Rs. 6.05