Profit and loss statement format in Pakistan
The profit and loss statement — the statement of profit or loss, or income statement — is where a business shows whether it made money and how. A common mistake is presenting it as an undifferentiated list of income minus expenses, which hides the very information the statement exists to reveal. A proper format steps down through subtotals, each answering a distinct question. This guide sets out that structure, the by-function versus by-nature choice, and a worked layout for a Pakistani business.
The flow from revenue to net profit
The value of the statement lies in its stepped subtotals. Rather than one bottom line, it moves through several:
- Revenue — sales of goods or services for the period, net of sales tax and returns.
- Gross profit — revenue minus cost of sales. Shows the margin on the core trading activity.
- Operating profit — gross profit plus other income, minus operating expenses (distribution and administrative). Shows profitability from operations before financing.
- Profit before tax — operating profit minus finance cost (interest). Shows the result after the cost of borrowing.
- Profit after tax — profit before tax minus the tax charge. The final result attributable to owners.
Each line isolates something: gross profit tests pricing and direct costs; operating profit tests overhead control; profit before tax shows the drag of financing; profit after tax is what actually accrues to the owners. A single net figure tells you none of this.
The complete format
A full statement of profit or loss and other comprehensive income, with the note column and comparative. Rs in thousand, 30 June year end.
| Note | 2026 | 2025 | |
|---|---|---|---|
| Revenue from contracts with customers | 19 | 480,000 | 430,000 |
| Cost of sales | 20 | (336,000) | (305,000) |
| Gross profit | 144,000 | 125,000 | |
| Distribution and selling costs | 21 | (42,000) | (38,000) |
| Administrative expenses | 22 | (38,000) | (35,000) |
| Other income | 23 | 6,000 | 4,000 |
| Operating profit | 70,000 | 56,000 | |
| Finance cost | 24 | (19,000) | (17,000) |
| Profit before taxation | 51,000 | 39,000 | |
| Taxation — current | 25 | (13,790) | (10,510) |
| Taxation — deferred | 25 | (1,000) | (800) |
| Profit after taxation | 36,210 | 27,690 | |
| Other comprehensive income | — | — | |
| Total comprehensive income | 36,210 | 27,690 | |
| Earnings per share — basic and diluted (Rs) | 26 | 3.02 | 2.31 |
Gross margin is 30.0%, operating margin 14.6% and net margin 7.5% — three different answers to "how profitable is it", which is why the subtotals exist rather than a single bottom line. Earnings per share is computed on 12,000 thousand ordinary shares of Rs 10 each.
Note two presentation points. Other comprehensive income is presented even when nil, because the statement is "profit or loss and other comprehensive income". And earnings per share is a face requirement for listed companies, not a note item.
We handle the computation, the minimum-tax comparison, statutory accounts and the annual filings together.
Avail our corporate tax servicesThe statement of changes in equity
The fourth statement, and the one most often produced last and checked least. It is the bridge between the profit and loss statement and the balance sheet.
| Share capital | Unappropriated profit | Total | |
|---|---|---|---|
| Balance at 1 July 2024 | 120,000 | 82,100 | 202,100 |
| Total comprehensive income for the year | — | 27,690 | 27,690 |
| Final dividend for the year ended 30 June 2024 | — | (15,000) | (15,000) |
| Balance at 30 June 2025 | 120,000 | 94,790 | 214,790 |
| Total comprehensive income for the year | — | 36,210 | 36,210 |
| Final dividend for the year ended 30 June 2025 | — | (15,000) | (15,000) |
| Balance at 30 June 2026 | 120,000 | 116,000 | 236,000 |
Check the articulation: profit after taxation of 36,210 in the profit and loss statement is the same 36,210 here, and closing equity of 236,000 is the equity total on the balance sheet. If those three numbers do not agree, one of the statements is wrong — and it is usually a dividend recorded in the wrong period.
By function or by nature
The framework permits two ways to present expenses:
- By function — grouped by purpose: cost of sales, distribution costs, administrative expenses. Common for trading and manufacturing businesses because it produces the gross-profit subtotal directly.
- By nature — grouped by type: raw materials consumed, employee benefits, depreciation, other expenses. Simpler to prepare for smaller operations, but does not itself yield a gross-profit line.
Either is acceptable; the choice should be consistent year to year, and where the by-function method is used, a breakdown of expenses by nature is often given in the notes. The cost-of-sales line in the by-function method rests on inventory accounting, covered in cost of goods sold and inventory.
Reading the statement, and common errors
The stepped format is only useful if the lines are drawn honestly, and a few errors recur in Pakistani accounts. The most common is misclassifying costs between cost of sales and operating expenses to flatter the gross margin — moving factory or direct costs down into administrative expenses lifts gross profit artificially and misleads anyone benchmarking the margin. A second is netting: showing income net of a related expense, or an expense net of a recovery, so that both revenue and costs are understated and the statement no longer reflects the true scale of activity. A third is treating a one-off gain — a disposal of an asset, an insurance recovery — as ordinary revenue, which overstates recurring performance. Reading the statement well means looking at the trend in each subtotal rather than the bottom line alone: a stable net profit can conceal a deteriorating gross margin masked by a one-off gain, and only the stepped layout reveals it. This is why the format is worth getting right even for a small business that files simple accounts.
This format changes under IFRS 18
The layout above reflects IAS 1, which IFRS 18 replaces for annual periods beginning on or after 1 January 2027. Anyone designing a reporting pack now should know what moves.
| Item | Today under IAS 1 | Under IFRS 18 |
|---|---|---|
| Operating profit | Not defined; presented by choice | Mandatory subtotal, defined as a residual |
| Profit before financing and income taxes | Not required | Mandatory subtotal |
| Share of profit of associates and joint ventures | Commonly inside operating profit | Moves to the investing category |
| Unusual or one-off items | Often shown before a chosen "operating" subtotal | Sit inside operating, as it is a residual category |
| "Operating profit before exceptional items" | Free-form subtotal | Becomes a management-defined performance measure requiring a reconciliation |
| Expenses by function | Permitted, no further analysis | Permitted, but specified nature information must also be disclosed |
Net profit is unaffected. The subtotals above it are not. Because comparatives must be restated, a 30 June year-end entity is inside its comparative year now — so the practical deadline for capturing data on the new basis has already arrived.
The link to the balance sheet and tax
The profit and loss statement does not stand alone. Its profit after tax flows into the balance sheet as an increase in unappropriated profit within equity — the two statements articulate, which is the check covered in financial statement preparation and used to lay out the companion balance sheet. Separately, the accounting profit shown here is only the starting point for tax: it is adjusted for inadmissible items and tax depreciation to reach taxable income, the bridge described under corporate income tax. Presenting the statement cleanly makes both the balance-sheet articulation and the tax reconciliation straightforward.
Sources
This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.
Questions people also ask
What are the main subtotals in a profit and loss statement?
A well-structured statement steps down through several subtotals: revenue, then gross profit (revenue minus cost of sales), then operating profit (gross profit minus operating expenses plus other income), then profit before tax (after finance cost), and finally profit after tax. Each subtotal answers a different question about the business, which is why the stepped format is more useful than a single list of income and expenses.
What is the difference between presenting expenses by function and by nature?
By function groups expenses by what they were for — cost of sales, distribution costs, administrative expenses. By nature groups them by what they are — raw materials, employee costs, depreciation. Both are permitted presentations; by function is common for trading and manufacturing businesses, by nature for simpler operations. The choice should be applied consistently, and if by function is used, a breakdown by nature is often disclosed in the notes.
How does the profit and loss statement connect to the balance sheet?
Through profit. The net profit (or loss) for the period computed in the profit and loss statement flows into the balance sheet as a movement in reserves — specifically unappropriated profit within equity. So the two statements are linked: the profit and loss explains the performance over the period, and its result changes the equity shown on the balance sheet at the period end.
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