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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

Kaveri Foods Ltd. reported profit before tax of Rs 18,00,000 for 2025-26 after charging Rs 1,50,000 as an expense relating to 2024-25 that was not accrued earlier because of an oversight. It also got Rs 60,000 of income relating to 2024-25 that was wrongly omitted then. What net prior period item must be disclosed, and what is the profit from ordinary activities before the net prior period item (ignoring tax)?

The net prior period item is a debit of Rs 90,000 (Rs 1,50,000 expense less Rs 60,000 income). Since it was already charged in arriving at Rs 18,00,000, adding it back gives Rs 18,90,000 as profit before the prior period item.

  1. ANet debit Rs 90,000; profit before the item Rs 18,90,000Correct
  2. BNet debit Rs 90,000; profit before the item Rs 17,10,000
  3. CNet debit Rs 2,10,000; profit before the item Rs 20,10,000
  4. DNet credit Rs 90,000; profit before the item Rs 17,10,000

Explanation

Net prior period item = expense 1,50,000 - income 60,000 = net debit of 90,000. This was already deducted in reaching 18,00,000, so profit before the item is 18,00,000 + 90,000 = 18,90,000. Option 2 subtracts it again, which is wrong.

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