Question

Statement I: Snow Ltd. made a net profit of ₹ 5,00,000 after taking into consideration interest on investment of ₹ 1,00,000. Operating profit before working capital changes would be ₹ 4,00,000.
Statement II: To calculate operating profit, before working capital changes, interest on investment is subtracted from net profit because it is a non-operating income.
Choose the correct option:

• A. Only Statement I is true
• B. Only Statement II is true
• C. Both the Statements are false
• D. Both the Statements are true

Hint:

Subtract non-operating incomes like interest/dividend from Net Profit to calculate Operating Profit.

Answer 1

The Correct Option is D

Operating profit excludes non-operating incomes such as interest on investments.
So, Net Profit ₹ 5,00,000 − Interest ₹ 1,00,000 = ₹ 4,00,000 Operating Profit.
Hence, both statements are correct.