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Q. Kiran Co had the following balances in its statement of financial position as at 30 June 20X5 and 20X4:
20X5
20X4
Current liabilities
$
$
Taxation payable
400
2,500
Dividends (declared before the year-end)
800 3,300
Non-current liabilities
50,000
40,000
8% Loan notes
85,500
Equity
In the year ended 30 June 20X5, income tax of $550 was paid. The
45,500
additional loan notes were issued on 30 June 20X5. What was Kiran Co’s profit before tax for the year ended 30 June
20X5?
>>> Sir the answer is : $44,250
I cannot understand how do we find the profit before tax here. I’ve watched your lectures sir please help me.Are you sure that you have typed up everything in the question?
I ask because there is no mention of any current or non-current assets. Also you have a heading ‘equity’ but no number below it.
Q. Kiran Co had the following balances in its statement of financial position as at 30 June 20X5 and 20X4:
20X5 20X4
Current liabilities: $ $Taxation payable 800 400
Dividends (declared before the year-end) 3300 2500
Non-current liabilities:
8% Loan notes 50,000 40,000
Equity 85,500 45.500
In the year ended 30 June 20X5, income tax of $550 was paid. The additional loan notes were issued on 30 June 20X5. What was Kiran Co’s profit before tax for the year ended 30 June 20X5?
>>Sorry sir, i typed the question again. Hope it is proper clear now i have typed everything given in the question. I am having difficulty finding the profit before tax using the cash flow related topics given as in this question.
Now I can explain 🙂 (Although this is not a cash flow question).
The equity increased by 40,000, and since there is no mention of any new shares being issued it must mean that the retained earnings increased by 40,000.
This increase will be the profit after tax and after dividends.
The tax charge for the year was 800 + 550 – 400 = 950.
The dividends declared for this year were 3,300.
Therefore the profit before tax and dividends must have been 40,000 + 950 + 3,300 = 44,250
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