Accountancy Part BCash Flow Statement

Calculate the amount of provision for tax made during the year, to be…

Calculate the amount of provision for tax made during the year, to be added to net profit to find the net profit before tax and extraordinary items for the year ended March 31, 2023:

Balance Sheet (Extract)

Particular

Note No.

31 Mar '23

31 Mar '22

Short Term Provision

(Provision for tax)

Rs. 80000

Rs. 1,10,000

Additional Information:

Tax paid during the year 2022-23 was Rs1,20,000.

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → ₹90,000

The provision made during the year is the balancing figure of the Provision for Tax Account:

Closing balance = Opening balance + Provision made − Tax paid

₹80,000 = ₹1,10,000 + Provision made − ₹1,20,000

Provision made = ₹80,000 + ₹1,20,000 − ₹1,10,000 = ₹90,000

This ₹90,000 is added back to net profit to get the net profit before tax and extraordinary items.

NCERT (2026-27 edition):
Ascertaining Cash Flow from Operating Activities – “… 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 (see Illustration 7 and 8).”