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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

Narmada Ltd. reports the following for 2025-26: profit from ordinary activities before tax Rs 18,00,000; a fire-related loss of Rs 2,00,000 from an uninsured warehouse, which is an extraordinary item; an additional depreciation of Rs 1,00,000 relating to 2024-25 omitted by mistake; tax expense Rs 4,00,000. Considering AS 5 and that tax is as given, what is the net profit for the period? (Prior period items and extraordinary items are included in net profit.)

Net profit for the period is Rs 11,00,000. Starting from Rs 18,00,000, deduct the extraordinary loss of Rs 2,00,000, the prior period depreciation of Rs 1,00,000 and tax of Rs 4,00,000, since AS 5 includes both items in net profit while disclosing them separately.

  1. ARs 12,00,000
  2. BRs 11,00,000Correct
  3. CRs 13,00,000
  4. DRs 10,00,000

Explanation

Net profit includes both extraordinary and prior period items. Start 18,00,000, less extraordinary loss 2,00,000 = 16,00,000, less prior period depreciation 1,00,000 = 15,00,000, less tax 4,00,000 = 11,00,000. Rs 12,00,000 omits the prior period item, and Rs 13,00,000 omits the extraordinary loss.

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