Question

Exe Ltd. has balance in Provision for Tax Account of Rs. 50,000 and Rs. 75,000 as on 31st March, 2024 and 2025 respectively. It made provision for tax during the year of Rs. 65,000. Tax paid during the year was

• A. Rs. 50,000
• B. Rs. 60,000
• C. Rs. 40,000
• D. Rs. 75,000

Hint:

Provision for Tax Formula: \[ \mathrm{Opening\ Balance} + \mathrm{Provision\ Made} - \mathrm{Tax\ Paid} = \mathrm{Closing\ Balance} \]

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
The "Provision for Tax Account" is a liability account.
The opening balance and the provision made during the year increase the liability, while the tax paid decreases it.
Step 2: Key Formula or Approach:
The relationship can be expressed through the following ledger equation:
\[ \text{Opening Balance} + \text{Provision Made during the year} - \text{Tax Paid} = \text{Closing Balance} \]
Rearranging to find Tax Paid:
\[ \text{Tax Paid} = \text{Opening Balance} + \text{Provision Made} - \text{Closing Balance} \]
Step 3: Detailed Explanation:
Given values:
- Opening Balance (March 31, 2024) = Rs. 50,000
- Closing Balance (March 31, 2025) = Rs. 75,000
- Provision made during the year = Rs. 65,000
Plugging into the formula:
\[ \text{Tax Paid} = 50,000 + 65,000 - 75,000 \]
\[ \text{Tax Paid} = 1,15,000 - 75,000 \]
\[ \text{Tax Paid} = \text{Rs. } 40,000 \]
Step 4: Final Answer:
The amount of tax paid during the year is Rs. 40,000.