Read the following passage and answer the question.
A company has a net profit after tax of ₹5,60,000 in the current year 2022. Company write off the bad debts of ₹5,000 during the year. Depreciation charged on fixed assets is ₹40,000. Company sold the investments and a gain of ₹10,000 arise. The following details are given-
| Particulars | 2021 (₹) | 2022 (₹) |
| Trade receivables | 70,000 | 90,000 |
| Trade payables | 45,000 | 70,000 |
| Outstanding expenses | 5,000 | 1,000 |
| Prepaid expenses | - | 2,000 |
| Provision for taxation | 16,000 | 25,000 |
How much tax is paid by the company?
Answer & explanation
Correct answer: option 1
The correct answer is option 1- ₹16,000
While calculating cash flow from operating activities, tax paid is determined using the Provision for Tax account. The key idea is that:
- Provision for tax of the previous year (2021) represents the actual tax paid during the current year (2022).
- The current year’s provision (₹25,000) is just an expense charged in the Profit & Loss Account and does not represent actual payment yet.
Tax paid = Opening Provision for Tax = ₹16,000