CUET Preparation Today
| While calculating operating profit which will be added to net profit? |
Interest received Profit on sale of Asset Increase in General Reserve Refund of Tax |
| Increase in General Reserve |
| An increase in the General Reserve would indeed be added back to net profit when calculating operating profit. The General Reserve represents a portion of retained earnings set aside for various purposes, and its increase reflects the reinvestment of profits back into the business. Therefore, it would be added back to net profit to calculate net profit before tax. A refund of tax is deducted from net profit before tax. Interest and profit on the sale of assets is non-operating income. That's why these are also deducted from net profit before tax to calculate the cash generated from operations. |
