Accounts & Economics Coaching Gurus

Cash Flow Statement

Treatment of Provision for Tax
(a) If adjustment is not given, only opening and closing balances are given
Solution:-
previous year (opening) balance of Provision for tax is shown in Cash flow from operating activities
just because last year tax should be paid.
It is subtracted from cash generated operation
Cash generated operation
Less:- Income tax paid
Current year (closing) balance of Provision for tax is shown in calculation of profit before tax.
just because current year tax treated as fund and it is added in calculation of profit before tax.
(b) If adjustment is given then prepare provision for tax a/c

How to prepare
PROVISION FOR TAX A/C
PLEASE SEE NEXT POST

Cash Flow Statement

Que:- Calculation of profit before tax?
Sol:- Difference between closing and opening balance of Profit and loss
Add:-
1. Difference of previous and current year of General Reserve
2.Provision for tax of current year
3. Proposed Divdend of previous year

Note:- Above format should be followed if previous and current year Balance sheets are given only, there is no adjustment given.