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CA Intermediate · Advanced Accounting · Financial Statements of Companies

Arjun Engineering Ltd. reports revenue from operations of Rs 90,00,000 for the year. Its expenses were: cost of materials consumed Rs 40,00,000; purchase of stock-in-trade Rs 6,00,000; opening finished goods Rs 5,00,000; closing finished goods Rs 8,00,000; employee benefit expense Rs 14,00,000; finance costs Rs 3,00,000; depreciation Rs 4,00,000; other expenses Rs 6,00,000. Other income is Rs 2,00,000. Ignoring tax, what is the profit before tax?

Profit before tax is Rs 22,00,000. Total income is Rs 92,00,000 including other income, and total expenses are Rs 70,00,000 after reducing costs by the Rs 3,00,000 increase in finished goods inventory.

  1. ARs 22,00,000Correct
  2. BRs 20,00,000
  3. CRs 19,00,000
  4. DRs 16,00,000

Explanation

Change in inventories = 5,00,000 - 8,00,000 = (3,00,000), which reduces expenses. Total expenses = 40 + 6 - 3 + 14 + 3 + 4 + 6 = Rs 70,00,000. Total income = 90,00,000 + 2,00,000 = 92,00,000. PBT = 92 - 70 = Rs 22,00,000. Treating the inventory change as +3,00,000 gives Rs 16,00,000, which is wrong.

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