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CA Intermediate · Advanced Accounting · Financial Statements of Companies

Narmada Ltd. reports the following for a year: Revenue from operations Rs 80,00,000; Other income Rs 4,00,000; Cost of materials consumed Rs 36,00,000; Purchases of stock-in-trade Rs 10,00,000; Opening inventory of finished goods Rs 5,00,000; Closing inventory of finished goods Rs 7,00,000; Employee benefit expense Rs 12,00,000; Finance costs Rs 3,00,000; Depreciation Rs 4,00,000; Other expenses Rs 6,00,000. What is the profit before tax?

Total revenue is 84,00,000 including other income. Expenses are 69,00,000 after treating the 2,00,000 increase in finished goods inventory as a reduction of expense. Profit before tax is therefore Rs 15,00,000.

  1. ARs 15,00,000Correct
  2. BRs 13,00,000
  3. CRs 17,00,000
  4. DRs 11,00,000

Explanation

Total revenue = 84,00,000. Change in inventories = 5,00,000 - 7,00,000 = (2,00,000), which reduces expenses. Expenses = 36 + 10 - 2 + 12 + 3 + 4 + 6 = 69,00,000. PBT = 84,00,000 - 69,00,000 = Rs 15,00,000. Adding the inventory change instead gives Rs 11,00,000, which is wrong.

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