treatment of interest on investment in comparative statement of profit and loss

Question

Answer

Treatment of Interest on Investment in Comparative Statement of Profit and Loss

Interest on investment is a common source of income for many businesses. It is important to understand how interest income is treated in the comparative statement of profit and loss to accurately assess the financial health of a business.

What is a Comparative Statement of Profit and Loss?

A comparative statement of profit and loss is a financial statement that compares a company's income and expenses over a period of time. This statement is used to analyze trends in a company's financial performance and to identify areas of strength and weakness.

Treatment of Interest Income in the Profit and Loss Statement

Interest income is recorded as revenue in the profit and loss statement. This revenue is reported under the heading 'Other Income' or 'Non-Operating Income' in the statement.

When preparing a comparative statement of profit and loss, it is important to ensure that interest income is reported consistently across all periods being compared. This ensures that the financial performance of the business can be accurately analyzed and compared over time.

How to Calculate Interest Income

Interest income is calculated based on the interest rate and the principal amount invested. The formula for calculating interest income is:

Interest Income = Principal Amount x Interest Rate x Time

Where:

Principal Amount = the amount of money invested

Interest Rate = the rate at which interest is paid on the investment

Time = the length of time the money is invested

Conclusion

Interest income is an important source of revenue for many businesses. It is important to accurately record and report interest income in the comparative statement of profit and loss to ensure that the financial performance of the business can be accurately analyzed and compared over time.

Answer

it would be under the head 'other income'

Similar Class 12 Doubts

Mahesh and Ramesh were partners in a firm sharing profits in the ratio of 5:3. Their capitals were rupees 3,00,000 and rupees 2,00,000 respectively.the partnership deed provided that: (

how to treatment of investment in existing partners when profit sharing ratio change

interest on dividend(accounting treatment in cash flow statement )

P and Q are partners. They share profits in 2:1 ratio. As per partnership they are to get interest on capital@ 10% p. a. Their capital were P :5000; Q: 3000. Their profit before interest were 10100 . Interest is allowed as a charge. What difference will it make if profit are 7100 only.?

Top Courses for Class 12

Related Content

Schools

Competitive Examinations

Quick Access Links

Technical Exams