Given:
- Selling price (SP) = Rs. 540
- Loss percentage = 5%

To Find:
- Cost price (CP)

Solution:

To find the cost price (CP), we need to use the formula for calculating the selling price:

Selling Price (SP) = Cost Price (CP) + Profit or Selling Price (SP) = Cost Price (CP) - Loss

In this case, since the item is sold at a loss of 5%, we will use the second formula.

Step 1: Convert the loss percentage to a decimal.
The loss percentage is given as 5%, so we divide it by 100 to convert it to a decimal: 5/100 = 0.05.

Step 2: Calculate the loss amount.
The loss amount is calculated by multiplying the selling price (SP) by the loss percentage: Loss = SP * Loss Percentage = 540 * 0.05 = Rs. 27.

Step 3: Substitute the values into the formula.
Substitute the calculated loss amount into the formula for selling price: SP = CP - Loss.
540 = CP - 27.

Step 4: Solve for the cost price (CP).
To find the cost price (CP), we rearrange the equation:
CP = SP + Loss = 540 + 27 = Rs. 567.

Therefore, the cost price of the item is Rs. 567.

Summary:
The cost price of the item is Rs. 567. The item is sold for Rs. 540 at a loss of 5%.