Give complete explanation of last two items.

Illustration 17: From the following information, calculate Net Profit before Tax and Extraordinary Items: 

Surplus, i.e., Balance in Statement of Profit and Loss (Opening)            Rs 50,000
Surplus, i.e., Balance in Statement of Profit and Loss (Closing)            Rs 1,18,000
Proposed Dividend for the current year                                                   Rs 36,000                                                          
Interim Dividend paid during the year                                                     Rs 45,000
Transfer to Reserve                                                                                   Rs 50,000
Provision for Tax made during the current year                                       Rs 75,000
Refund of Tax                                                                                           Rs 1,500
Loss due to Earthquake                                                                            Rs 1,00,000
Insurance Proceeds from Earthquake disaster settlement                        Rs 50,000

 

Dear Student


Loss Due to Earthquake:  Means abnormal loss caused to business due to the earthquake. It is an extraordinary item. This Loss is debited to profit and loss account for arriving at the net profit, therefore in order to find net profit before tax and Extraordinary items, it shall be added back to Net profit after extraordinary item and tax.

Insurance Proceeds: It means the amount recovered from Insurance company on account of Loss. It is also a extraordinary item and it is credited in Profit and loss account to arrive at the net profit after Extraordinary items.So in order to find net profit before Tax and Extraordinary item, it shall be Deducted from net profit after tax and Extraordinary items.


Regards






 

  • 2
Loss due to earthquake is an extraordinary loss (which is added to find net profit before tax and extraordinary items)
and the compensation receive for the same is deducted
  • 0
What are you looking for?