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Querist : Anonymous

Querist : Anonymous (Querist)

06 March 2012 ‘XYZ’ Ltd. has a revenue of Rs 6,00,000 and it has to provide for depreciation @
10% on straight line basis. It has cash expenses of Rs 1, 20,000. The taxes are @
50% . Show the net earnings on accounting approach basis and cash flow basis.
any body can solved it?????????????????????

Querist : Anonymous

Querist : Anonymous (Querist)

13 March 2012 sir plzzzzzzzzzz reply

Querist : Anonymous

Querist : Anonymous (Querist)

13 March 2012 plzzzzzzzzzzzzzz reply

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

24 July 2024 Sure, let's calculate the net earnings for 'XYZ' Ltd. based on both the accounting approach (accrual basis) and cash flow basis, given the provided information.

### Given Information:

- Revenue: Rs 6L
- Depreciation: 10% on straight-line basis
- Cash Expenses: Rs 1.20L
- Tax Rate: 50%

### Calculations:

#### 1. Accounting Approach (Accrual Basis):

**Step 1: Calculate Depreciation:**
Depreciation is calculated at 10% on the straight-line basis.

\[ \text{Depreciation} = \frac{10}{100} \times \text{Revenue} \]
\[ \text{Depreciation} = \frac{10}{100} \times 6L \]
\[ \text{Depreciation} = 60K \]

**Step 2: Calculate Operating Profit (EBIT - Earnings Before Interest and Taxes):**
Operating Profit is Revenue minus Depreciation minus Cash Expenses.

\[ \text{Operating Profit} = \text{Revenue} - \text{Depreciation} - \text{Cash Expenses} \]
\[ \text{Operating Profit} = 6L - 60K - 1.20L \]
\[ \text{Operating Profit} = 4.20L \]

**Step 3: Calculate Taxable Income:**
Taxable Income is Operating Profit minus Depreciation.

\[ \text{Taxable Income} = \text{Operating Profit} - \text{Depreciation} \]
\[ \text{Taxable Income} = 4.20L - 60K \]
\[ \text{Taxable Income} = 3.60L \]

**Step 4: Calculate Taxes:**
Taxes are calculated at 50% of Taxable Income.

\[ \text{Taxes} = \text{Taxable Income} \times \frac{50}{100} \]
\[ \text{Taxes} = 3.60L \times 0.50 \]
\[ \text{Taxes} = 1.80L \]

**Step 5: Calculate Net Earnings (Net Profit):**
Net Earnings is Operating Profit minus Taxes.

\[ \text{Net Earnings (Accounting Basis)} = \text{Operating Profit} - \text{Taxes} \]
\[ \text{Net Earnings (Accounting Basis)} = 4.20L - 1.80L \]
\[ \text{Net Earnings (Accounting Basis)} = 2.40L \]

#### 2. Cash Flow Basis:

**Step 1: Calculate Cash Flow from Operations:**
Cash Flow from Operations is Revenue minus Cash Expenses.

\[ \text{Cash Flow from Operations} = \text{Revenue} - \text{Cash Expenses} \]
\[ \text{Cash Flow from Operations} = 6L - 1.20L \]
\[ \text{Cash Flow from Operations} = 4.80L \]

**Step 2: Calculate Taxes Paid (Cash Flow Basis):**
Taxes Paid is calculated at 50% of Revenue (assuming taxes are paid based on revenue before depreciation).

\[ \text{Taxes Paid} = \text{Revenue} \times \frac{50}{100} \]
\[ \text{Taxes Paid} = 6L \times 0.50 \]
\[ \text{Taxes Paid} = 3L \]

**Step 3: Calculate Net Cash Flow (Cash Flow Basis):**
Net Cash Flow is Cash Flow from Operations minus Taxes Paid.

\[ \text{Net Cash Flow (Cash Flow Basis)} = \text{Cash Flow from Operations} - \text{Taxes Paid} \]
\[ \text{Net Cash Flow (Cash Flow Basis)} = 4.80L - 3L \]
\[ \text{Net Cash Flow (Cash Flow Basis)} = 1.80L \]

### Summary:

- **Net Earnings (Accounting Approach):** Rs 2.40L
- **Net Cash Flow (Cash Flow Basis):** Rs 1.80L

These calculations show how net earnings differ when calculated on an accrual basis (accounting approach) versus a cash flow basis. The accounting approach considers depreciation and taxable income, while the cash flow basis focuses on actual cash inflows and outflows during the period.

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