What changes in the P&L Account :Business Line

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The new format requires companies to present various items of cost separately.

It is not just India Inc's balance sheet that will see a makeover soon. With companies set to adopt the new Schedule VI, the Profit and Loss account (P&L account) will change too.

Earlier, the rules only listed the items to be disclosed in a P&L without specifying any format. The revised schedule has come out with a format. But you may barely notice the new format in your annual report, as most companies today follow a very similar style of presentation.

However, the provision of a format using nature-based classification of expenses may prove to be disadvantageous to some companies that may have been using a function-based classification.

For example, the new format requires companies to separately present items such as cost of raw materials consumed, depreciation, employee-related expenses, etc, (i.e, presentation based on nature).

Experts say that some upstream oil and gas companies present production expenses as a separate item in the P&L account and cover cost of material, labour, fuel, royalty, etc, under it, which is a presentation based on function.

Similarly, certain IT/ITES companies that follow a function-based classification may have to change the method of presentation, they say.

These companies, though, have the choice to show the function-based classification as an additional disclosure in the notes to accounts/schedules — which is what Cairn India or Oil India already does. Similarly, the line items specified in the format are the minimum requirements and companies are allowed to add whatever will explain their business best.

So, if operating profit (Earnings before interest, depreciation, taxes and amortisation) is an important parameter to understand the profitability of your company, you could well see them including this measure on the face of the P&L account.