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
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