In situations where neither the amount of net profit is specified nor the Statement of Profit and Loss is given, how can the amount of net profit before tax be determined?
Answer & explanation
Correct answer: option 2
The correct answer is option 2- By comparing the balances of the Profit and Loss Statement for two years given in the comparative balance sheets and adjusting the tax provision difference
Sometimes, neither the amount of net profit is specified nor the Statement of profit and loss is given. In such a situation, the amount of net profit can be worked out by comparing the balances of Statement of Profit and Loss given in the comparative balance sheets for two years. The difference is treated as the net profit for the year; and, then, by adjusting it with the amount of provision for tax made during the year (as worked out by comparing the provision for tax balances of two years given in balance sheets), the amount of ‘Net Profit before tax’ can be ascertained.