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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

Gupta Pharma Ltd. reports profit from ordinary activities of Rs 12,00,000 for 2025-26 before the following items: (i) a prior period expense of Rs 90,000 relating to under-provided audit fee of 2024-25 discovered now, (ii) profit of Rs 2,00,000 on sale of a surplus factory unit that is an ordinary activity of significant size, and (iii) a change in estimate of debtors' recoverability that increased bad debt expense by Rs 60,000, already included in the Rs 12,00,000. What is the net profit for the period under AS 5 after the prior period item, with the other items already included in or treated as ordinary activity result? Assume the Rs 12,00,000 excludes items (i) and (ii).

Net profit is Rs 13,10,000: the Rs 12,00,000 base plus the Rs 2,00,000 profit on sale, less the Rs 90,000 prior period expense. The bad debt estimate change is already included in the base, and all items pass through the Statement of Profit and Loss under AS 5.

  1. ARs 13,10,000Correct
  2. BRs 15,10,000
  3. CRs 11,10,000
  4. DRs 12,50,000

Explanation

Net profit includes ordinary activities, extraordinary items and prior period items. Start with 12,00,000, add the sale profit of 2,00,000 (an ordinary activity item, disclosed separately for size) to get 14,00,000, then deduct the prior period expense of 90,000 to get Rs 13,10,000. The estimate change of 60,000 is already within 12,00,000. Check: 12,00,000 + 2,00,000 - 90,000 = 13,10,000. Ignoring the prior period item gives Rs 14,00,000 and ignoring the sale gives Rs 11,10,000.

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