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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 Industries Ltd. reported the following for 2025-26: profit from ordinary activities Rs 18,00,000 before an extraordinary loss of Rs 3,00,000 caused by an earthquake. During the year it also changed its estimate of useful life of machinery, which increased depreciation by Rs 1,20,000; this is already included in the Rs 18,00,000 figure. Compute the net profit for the period as per AS 5 (ignore tax).

Net profit is Rs 15,00,000, obtained by deducting the extraordinary loss of Rs 3,00,000 from the ordinary profit of Rs 18,00,000. The extra depreciation from the revised useful life is already inside the Rs 18,00,000, so deducting it again would be double counting.

  1. ARs 13,80,000
  2. BRs 15,00,000Correct
  3. CRs 16,80,000
  4. DRs 12,60,000

Explanation

Net profit equals profit from ordinary activities less the extraordinary loss: 18,00,000 - 3,00,000 = Rs 15,00,000. The change in estimate is already included in the ordinary activities figure, so no further adjustment is made. Deducting Rs 1,20,000 again would give Rs 13,80,000, which double counts the depreciation effect.

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