Other income is ₹5,00,000 which is 25% of Revenue from operations. Employees benefit Expenses are 30% of the Revenue from operation. Tax rate is 40%. Net profit after tax will be:
₹10,25,000
Calculating Net Profit After Tax
To find the Net Profit After Tax, we need to follow several steps using the information provided about Revenue from Operations, Other Income, Employee Benefit Expenses, and the Tax Rate.
Step 1: Determine Revenue from Operations
We are given that Other Income is ₹5,00,000 and this amount represents 25% of the Revenue from Operations. We can use this relationship to calculate the total Revenue from Operations.
Let Revenue from Operations be $R$.
Given: Other Income = $\text{₹5,00,000}$
Given: Other Income = $25\%$ of Revenue from Operations
So, $\text{₹5,00,000} = 25\% \times R$
To find $R$, we convert the percentage to a decimal and divide:
$R = \frac{\text{₹5,00,000}}{0.25}$
$R = \text{₹20,00,000}$
Thus, the Revenue from Operations is ₹20,00,000.
Step 2: Calculate Employee Benefit Expenses
We are told that Employee Benefit Expenses are 30% of the Revenue from Operations. Now that we know the Revenue from Operations, we can calculate this expense.
Employee Benefit Expenses = $30\%$ of Revenue from Operations
Employee Benefit Expenses = $0.30 \times \text{₹20,00,000}$
Employee Benefit Expenses = $\text{₹6,00,000}$
Step 3: Calculate Total Revenue
Total Revenue is the sum of Revenue from Operations and Other Income.
Total Revenue = Revenue from Operations + Other Income
Total Revenue = $\text{₹20,00,000} + \text{₹5,00,000}$
Total Revenue = $\text{₹25,00,000}$
Step 4: Calculate Profit Before Tax (PBT)
Profit Before Tax is calculated by subtracting relevant expenses from the Total Revenue. In this problem, only Employee Benefit Expenses are given as an expense. We will calculate PBT by subtracting these expenses from the Total Revenue.
Profit Before Tax (PBT) = Total Revenue - Employee Benefit Expenses
Profit Before Tax (PBT) = $\text{₹25,00,000} - \text{₹6,00,000}$
Profit Before Tax (PBT) = $\text{₹19,00,000}$
Step 5: Calculate Tax Expense
Tax is calculated as a percentage of the Profit Before Tax. The tax rate is given as 40%.
Tax Expense = Tax Rate $\times$ Profit Before Tax
Tax Expense = $40\% \times \text{₹19,00,000}$
Tax Expense = $0.40 \times \text{₹19,00,000}$
Tax Expense = $\text{₹7,60,000}$
Step 6: Calculate Net Profit After Tax (NPAT)
Finally, Net Profit After Tax is found by subtracting the Tax Expense from the Profit Before Tax.
Net Profit After Tax (NPAT) = Profit Before Tax - Tax Expense
Net Profit After Tax (NPAT) = $\text{₹19,00,000} - \text{₹7,60,000}$
Net Profit After Tax (NPAT) = $\text{₹11,40,000}$
Summary of Calculation
| Item | Amount (₹) |
|---|---|
| Revenue from Operations | 20,00,000 |
| Add: Other Income | 5,00,000 |
| Total Revenue | 25,00,000 |
| Less: Employee Benefit Expenses | 6,00,000 |
| Profit Before Tax (PBT) | 19,00,000 |
| Less: Tax ($\text{40\%}$ of PBT) | 7,60,000 |
| Net Profit After Tax (NPAT) | 11,40,000 |
Based on the calculations using the provided data, the Net Profit After Tax is ₹11,40,000.
Revision Table: Key Accounting Terms
| Term | Explanation |
|---|---|
| Revenue from Operations | Income earned from the primary business activities of a company (e.g., sales of goods or services). |
| Other Income | Income earned from activities not directly related to the primary business operations (e.g., interest received, rent received, profit on sale of assets). |
| Employee Benefit Expenses | Costs incurred by a company related to its employees, such as salaries, wages, bonuses, and contributions to provident fund or pension schemes. |
| Profit Before Tax (PBT) | Profit earned by a company before deducting income tax. Calculated as Total Revenue minus all expenses (excluding tax). |
| Net Profit After Tax (NPAT) | The final profit figure remaining after all expenses, including income tax, have been deducted from total revenue. Also known as Profit After Tax (PAT). |
Additional Information: Profit & Loss Statement Structure
The calculation performed above follows a simplified structure similar to a portion of a company's Statement of Profit and Loss (also known as the Income Statement). A full statement would typically include more expense categories like Cost of Materials Consumed, Purchases of Stock-in-Trade, Changes in Inventories, Finance Costs, Depreciation and Amortisation Expenses, etc., before arriving at Profit Before Tax.
The basic flow is:
- Revenue from Operations
- Plus: Other Income
- Equals: Total Revenue
- Less: Expenses (Cost of Revenue, Employee Benefits, Finance Costs, Depreciation, Other Expenses)
- Equals: Profit Before Tax
- Less: Tax Expense
- Equals: Profit After Tax
Understanding these components helps in analyzing a company's financial performance.
Important Questions from Financial Statement Analysis
This tool of Analysis of financial statement indicates the relationship between different items of a financial statement with a common item by expressing each item as a percentage of that common item. Identify this analysis tool.
Match List I with List II:
LIST I LIST II A. Revenue from operation I. Goodwill written off B. Finance Cost II. Sale of Services C. Amortization Expenses III. Profit sale of Investment D. Other Income IV. Interest on Debentures Choose the correct answer from the options given below:
Arrange the following in the context of Statement of Profit and Loss:
- Other income
- Expenses
- Total Revenue
- Revenue from operation
- Profit before tax and extra-ordinary item
Which of the following item is not a tool of financial statement analysis?
Match List I with List II:
LIST I LIST II A. Horizontal Analysis I. Common size statement B. Vertical Analysis II. Comparative statement C. External Analysis III. Access to all published and unpublished information D. Internal Analysis IV. Access only to published information Choose the correct answer from the options given below:
