Question
A company’s Profit before tax for the year is
₹6,00,000. Depreciation charged is ₹50,000. During the year, trade debtors increased by ₹40,000 and trade creditors increased by ₹30,000. The Provision for Tax at the beginning of the year was ₹80,000, and at the end of the year it stood at ₹1,20,000. Actual tax liability created during the year was ₹1,50,000. From this information, calculate the amount of tax actually paid during the year and also determine Net Cash from Operating Activities (CFO) using the Indirect Method.Solution
• Tax Provision A/c logic: o Opening Balance = 80,000 o Add Current Year Provision = 1,50,000 o Less Closing Balance = 1,20,000 o Balancing figure = Tax paid = 1,10,000 • CFO: o PBT = 6,00,000 o Add Dep = 50,000 → 6,50,000 o Adjust WC = –40,000 + 30,000 = –10,000 → 6,40,000 o Less Tax paid = 1,10,000 → 5,30,000
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