Why is general reserve added to calculate net profit before tax when net profit after tax is given?
Dear Student
As per Accounting Standard -3 issued by ICAI profit transferred to general reserve should be added to arrive at profit before tax because general reserve is created out of profits. General reserve is a part of owner equity. It is just appropriation of profits. Therefore, it is added back to profit to arrive as exact flow of cash.
Regards
As per Accounting Standard -3 issued by ICAI profit transferred to general reserve should be added to arrive at profit before tax because general reserve is created out of profits. General reserve is a part of owner equity. It is just appropriation of profits. Therefore, it is added back to profit to arrive as exact flow of cash.
Regards