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CA Intermediate · Advanced Accounting · AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies

Ananya Pharma Ltd. reported profit before tax of Rs 50,00,000 for 2025-26 before the following items: (i) Rs 3,00,000 income from a prior-period sales adjustment now agreed with a customer, relating to 2023-24 invoices wrongly under-billed; (ii) Rs 2,00,000 loss on fire destroying an uninsured godown, which is an ordinary activity item of unusual size. Both are not yet included in the Rs 50,00,000. What is the profit before tax to be shown after including both items, and how should they be disclosed?

Profit before tax is Rs 51,00,000, being 50,00,000 plus 3,00,000 prior period income less 2,00,000 fire loss. The prior period item is disclosed separately, and the fire loss is shown separately as an exceptional item.

  1. ARs 51,00,000, with the prior period income shown separately and the fire loss disclosed separately as an exceptional itemCorrect
  2. BRs 55,00,000, with both items shown as extraordinary
  3. CRs 45,00,000, with both items ignored as prior period
  4. DRs 49,00,000, with the prior period income excluded from profit

Explanation

Both items are included in current profit: 50,00,000 + 3,00,000 - 2,00,000 = 51,00,000. The under-billing is a prior period item disclosed separately. The fire loss arises from ordinary activities though unusual in size, so it is an exceptional item disclosed separately, not extraordinary. Check: 53,00,000 - 2,00,000 = 51,00,000.

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