Question

Identify the correct sequence to find out profit after tax while preparing comparative income statement
A. Deduct expenses 
B. Find out total revenue by adding other incomes to revenue from operations 
C. Find out profit after tax 
D. Deduct tax E. Calculate profit before tax 
Choose the correct answer from the options given below:

• A. E. B, A, D, C
• B. B. A, E, D, C
• C. B. E, A, C, D
• D. E, C, B, A, D

Answer 1

The Correct Option is B

Step 1: Find Total Revenue (B)

Start by calculating the total revenue. This includes revenue from operations (e.g., sales) and other incomes (e.g., interest, dividends). This matches step B: "Find out total revenue by adding the other incomes to revenue from operations."

Step 2: Deduct Expenses (A)

Subtract all expenses (e.g., cost of goods sold, operating expenses, depreciation) from the total revenue. This gives us the profit before tax. This matches step A: "Deduct expenses."

Step 3: Calculate Profit Before Tax (E)

The result after deducting expenses is the profit before tax. This matches step E: "Calculate the profit before tax."

Note: Steps C ("Find out the profit after tax") and D ("Deduct the tax") come after finding profit before tax, as they are used to calculate profit after tax, not profit before tax.

Evaluate the Options

Let’s check the given options to find the correct sequence for calculating profit before tax:

• Option 1: E, B, A, D, C: Starts with calculating profit before tax (E), which is incorrect since we need to find revenue and deduct expenses first.
• Option 2: B, A, E, D, C: Starts with finding total revenue (B), deducts expenses (A), and calculates profit before tax (E). This is the correct sequence for finding profit before tax. The remaining steps (D, C) are for profit after tax.
• Option 3: B, E, A, C, D: Starts with finding revenue (B), but jumps to calculating profit before tax (E) before deducting expenses (A), which is out of order.
• Option 4: E, C, B, A, D: Starts with calculating profit before tax (E) and profit after tax (C), which doesn’t make sense as a starting point.

Final Answer

The correct sequence to find profit before tax is B, A, E, which matches Option 2: B, A, E, D, C.