Premium on redemption of reserve should be added/subtracted/exempted.
And why?
Solution:
Premium on redemption of debentures is a liability and payable when debentures are redeemed. And loss on issue of debentures is transferred to Statement of profit and loss either its discount or premium paid on redemption. If in the question we get loss on issue of debenture than it will added to Net profit before tax and extraordinary item but not in the given case.Thus Premium on redemption of debenture is neither added nor subtracted from Net profit before tax and extraordinary items.
| Particulars | Amount | Amount |
| Net profit before tax and extraordinary items | 223500 | |
| Adjustment for non cash items: | ||
| Add: Depreciation | 42000 | |
| Interest on borrowing | 8400 | |
| Goodwill amortised | 9300 | |
| loss on sale of machinery | 9000 | 68700 |
| 292000 | ||
| Less: Interest received on investment | 13000 | |
| Profit on sale of investment | 6000 | (19000) |
| Operating profit before working capital changes | 272400 |
Premium on redemption of debentures is a liability and payable when debentures are redeemed. And loss on issue of debentures is transferred to Statement of profit and loss either its discount or premium paid on redemption. If in the question we get loss on issue of debenture than it will added to Net profit before tax and extraordinary item but not in the given case.Thus Premium on redemption of debenture is neither added nor subtracted from Net profit before tax and extraordinary items.