Question

Following is the extract of Balance Sheet of Star Ltd. for the year ended 31st March, 2026:

Equity and Liabilities	31st March, 2026 (₹)	31st March, 2025 (₹)
Surplus, i.e., Balance in Statement of Profit & Loss	11,00,000	5,00,000
Dividend Payable	50,000	40,000

Additional Information:

Proposed Dividend in the years ended 31st March 2025 and 2026 were ₹ 7,00,000 and ₹ 6,00,000 respectively.

Which of the following options is correct as Net Profit before Tax and Extraordinary Items?

Options

• ₹ 6,40,000

• ₹ 8,40,000

• ₹ 11,40,000

• ₹ 13,00,000

Answer 1

₹ 13,00,000

Explanation:

Net Profit for the current year (surplus increase):
\[\text{Closing Surplus (2026)} - \text{Opening Surplus (2025)}\]
$$₹ 11,00,000 - ₹ 5,00,000 = {₹ 6,00,000}$$ 

Proposed Dividend Adjustment: As per accounting standards (AS 3), the previous year’s proposed dividend (31st March 2025) of ₹ 7,00,000 is declared and appropriated during the current financial year. The current year’s proposed dividend (₹ 6,00,000) is ignored until next year.

$$\text{Net Profit before Tax} = \text{Current Year Net Profit} + \text{Previous Year Proposed Dividend}$$

$$\text{Net Profit before Tax} = ₹ 6,00,000 + ₹ 7,00,000 = {₹13,00,000}$$