Skip to content

CA Intermediate · Advanced Accounting · AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies

Sundaram Auto Ltd. reports the following for 2025-26: profit from ordinary activities before tax ₹40,00,000. During the year, a fire destroyed a warehouse, causing an uninsured loss of ₹6,00,000, which is clearly distinct from ordinary activities and not expected to recur. An expense of ₹1,50,000 relating to 2024-25 electricity charges, wrongly omitted last year, was also booked in 2025-26 and is included in the ₹40,00,000. Tax is 25% on the net profit before tax after all items. What is the net profit for the period, assuming that the fire loss is NOT yet deducted from the ₹40,00,000 and the electricity expense is already deducted?

Net profit is ₹25,50,000. The ₹40,00,000 already includes the prior period expense, so only the ₹6,00,000 extraordinary fire loss is deducted, giving ₹34,00,000. Tax at 25% is ₹8,50,000, leaving ₹25,50,000. Deducting the prior period item again would double count.

  1. A₹25,50,000Correct
  2. B₹34,00,000
  3. C₹30,00,000
  4. D₹25,50,000 less ₹1,50,000, i.e. ₹24,00,000

Explanation

Profit before tax of ₹40,00,000 already includes the prior period expense, so only the extraordinary loss is deducted: 40,00,000 - 6,00,000 = ₹34,00,000. Tax at 25% is ₹8,50,000, giving net profit ₹25,50,000. Option 4 wrongly deducts the prior period item a second time.

Did you get it right without looking?

One question tells you little. A timed set on AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies shows your real accuracy, how long you take and where you lose marks.

Practise AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting PoliciesFree diagnostic mock

More AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies questions