Question

Statement I: Snow Ltd. made a net profit of ₹ 5,00,000 after taking into consideration interest on investment of ₹ 1,00,000. Operating profit before working capital changes would be ₹ 4,00,000.

Statement II: To calculate operating profit before working capital changes, interest on investment is subtracted from net profit because it is a non-operating income.

Choose the correct option from the following:

Options

• Only statement I is true.

• Only statement II is true.

• Both the statements are false.

• Both the statements are true.

Answer 1

Both the statements are true.

Explanation:

Interest on investment is a non-operating income because it comes from investing activities, not day-to-day business operations. Since it was already added to find the net profit, it must be subtracted to isolate the core operating earnings. Doing this correctly changes the net profit from ₹ 5,00,000 to an operating profit of ₹ 4,00,000 (₹ 5,00,000 − ₹ 1,00,000), making both statements factually accurate.