Preparation of Statement of Profit and Loss in anon-revenue generating organization

Facts of the case

A Corporation, a special purpose vehicle (SPV) was incorporated on 9th July, 2008 under the
Companies Act, 1956 for execution of ‘East-West Metro Corridor Project’ in one of the metro cities.
Revenue services are undertaken by Metro Railway of the city, who will be in charge of operation
and maintenance of the system.
Hence, no revenue is earned by the Corporation.

Query

The Statement of Profit and Loss used to be prepared since the inception of the enterprise,
which mainly constituted of expenses, such as, employee benefit expenses, depreciation &
amortization expenses and other administrative expenses (all kinds of audit fees, repair &
maintenance, printing & stationery, foreign exchange fluctuation cost, etc.). All other expenses
related to the project are being capitalized.
As the enterprise does not generate any revenue, this resulted in portraying the enterprise as a
loss making one, which is not the case.
Based on the above, opinion of the Expert Advisory Committee has been sought as to whether
preparation of the Statement of Profit and Loss is required in the current scenario or can be done
away with.

Points considered by the Committee

The Committee notes that the financial statements as defined in the Companies Act, 2013 and
in Ind AS 1, essentially includes statement of profit and loss for the period.
Further, no exemption or relaxation has been given to any entity in respect of preparation of the
Statement of Profit and Loss on any account.
It is not necessary that all expenses incurred during construction are eligible to be capitalised to
the project/asset being constructed. Similarly, just because the only activity undertaken by the
Corporation at present is the construction activity, does not mean that every expense incurred
by the Corporation is directly related or attributable to the construction activities.

Conclusion:

Merely because there were only expense items being recognized in the Statement of Profit and
Loss and thereby portraying the picture of Corporation being the loss-making organization
cannot be the basis of not preparing the Statement of Profit and Loss.
Accordingly, the Committee is of the view that the Corporation is required to prepare Statement
of Profit and Loss every financial year irrespective of whether it is earning profits or losses and
that there is no revenue or income being recognized in the Statement of Profit and Loss.

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