Given below are the extracts of information from Financial statements of Zucca Ltd.

Calculate amount of Net Profit after tax, if an interim dividend of ₹2,00,000 was declared and paid.

₹5,00,000

The correct answer is Option (2) → ₹5,00,000.

Net change in profit = 7,00,000 - 4,00,000
                              = 3,00,000

Interim dividend of ₹2,00,000 was declared and paid. Dividend is paid out of net profits after tax so it is added back to calculate net profit after tax.

Net profit = 3,00,000 + 2,00,000
              = 5,00,000

Note : Proposed dividend is not treated as an expense of the current year because it is declared only after the financial year ends and approval is given in the Annual General Meeting. Until it is declared, it is shown in the Notes to Accounts and does not reduce the profit of the current year. Therefore, while calculating net profit, proposed dividend (or dividend payable) is not added back, as it has not been appropriated from the current year’s profit. Only interim dividend, which is actually declared and paid during the year, is adjusted.