Read the following information and answer the question.

Kavita is the C.E.O of ABC Ltd. which deals in the manufacturing of toys. The profit of ABC Ltd. after appropriations was ₹2,00,000. They transferred ₹20,000 to General Reserve. Kavita is concerned about the Cash Position of the company. She enquired with the different departments of the company about their cash positions. It was acknowledged that the company has received ₹85,000 cash from its manufacturing activities. There was a sale of an old machine for ₹1,00,000 (Book Value ₹1,20,000). The Preference shares were redeemed for ₹2,00,000. Interest Received on Investment and Interest paid on Debentures were ₹10,000 and ₹20,000 respectively.

Calculate the Operating Profit before working capital changes ABC Ltd.

₹2,50,000

The correct answer is option 3- ₹2,50,000.

Surplus = ₹2,00,000
Add: Transfer to Reserve = 20,000
Net Profit before tax and extra ordinary items = (2,00,000 + 20,000)
                                                                         = ₹2,20,000

Net Profit before tax and extra ordinary items = 2,20,000
Add: Interest on Debentures = 20,000 (financing activity)
Add: Loss on Sale of fixed assets = 20,000 (non cash item)
Less : Interest Received = 10,000 (investing activity)
Operating Profit before working Capital Changes = (2,20,000 + 20,000 + 20,000 - 10,000)
                                                                              = (2,60,000 - 10,000)
                                                                              = 2,50,000