The balance sheet shows Provision for Taxation of Rs. 80,000 and Rs. 95,000 for the year 2023-24 and 2024-25 respectively. Tax paid during the year 2024-25 is Rs. 60,000. What will be the amount of tax to be added while calculating net profit before tax and extra ordinary items in preparing cash flow statement?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs. 75,000
Net profit before tax is found by adding back the tax provided for the year, which is the figure that balances the Provision for Taxation Account.
Opening provision (2023-24) = Rs. 80,000
Tax paid during 2024-25 = Rs. 60,000
Closing provision (2024-25) = Rs. 95,000
Provision made for the year = Rs. 95,000 + Rs. 60,000 − Rs. 80,000 = Rs. 75,000
The tax paid, Rs. 60,000, is shown separately as an outflow under operating activities; it is not the amount added back.
NCERT (2026-27 edition):
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