📌 Advanced Accounting Concepts with Tax & Depreciation

Now, let's extend our example with tax calculations and depreciation for a more complete financial picture.

1️⃣ Adding Tax to the Income Statement

📌 Assume:

Corporate Tax Rate = 25%
Net profit before tax = ₹75,000

📌 Tax Calculation

Tax Payable = Net Profit × Tax Rate
= ₹75,000 × 25%
= ₹18,750

Updated Income Statement

Particulars	Amount (₹)
Revenue (Sales)	80,000
Less: Expenses
Rent	(5,000)
Profit Before Tax	75,000
Less: Income Tax (25%)	(18,750)
Net Profit After Tax	₹56,250

📌 Key Takeaway:
After paying taxes, the business retains ₹56,250 as net profit.

2️⃣ Depreciation on Fixed Assets

📌 Assume:

Business buys furniture worth ₹20,000.
Depreciation Rate (SLM Method) = 10% per year
Depreciation for the first year = ₹20,000 × 10% = ₹2,000

📌 Updated Income Statement (Including Depreciation)

Particulars	Amount (₹)
Revenue (Sales)	80,000
Less: Expenses
Rent	(5,000)
Depreciation (Furniture)	(2,000)
Profit Before Tax	73,000
Less: Income Tax (25%)	(18,250)
Net Profit After Tax	₹54,750

📌 Key Takeaway:

Depreciation reduces taxable profit, saving some tax.
Lower taxable income = Lower tax liability.

3️⃣ Updated Balance Sheet (Including Depreciation & Tax Payable)

Assets	Amount (₹)	Liabilities & Equity	Amount (₹)
Cash	45,000	Owner’s Equity (After Tax)	54,750
Accounts Receivable	80,000	Tax Payable	18,250
Inventory	50,000	Total Liabilities & Equity	₹1,24,750
Furniture (After Depreciation)	18,000

📌 Key Takeaways:

Tax Payable ₹18,250 is added as a liability.
Furniture value decreases due to depreciation (₹20,000 - ₹2,000 = ₹18,000).
The balance sheet remains accurate and balanced.

4️⃣ Final Cash Flow Statement (Including Tax Payment & Furniture Purchase)

Activity	Cash Inflow (₹)	Cash Outflow (₹)
Operating (Inventory Purchase)	-	50,000
Operating (Rent Payment)	-	5,000
Operating (Tax Payment)	-	18,250
Investing (Furniture Purchase)	-	20,000
Net Cash Flow	-	₹93,250

📌 Key Takeaways:

₹93,250 cash outflow from total business activities.
The business must ensure it has enough cash reserves for taxes & expenses.

💡 Conclusion:

1️⃣ After-tax profit is ₹54,750, lower than before-tax ₹75,000.
2️⃣ Depreciation reduces tax liability, helping in long-term tax savings.
3️⃣ The balance sheet adjusts for tax payments & asset depreciation, keeping it balanced.
4️⃣ The cash flow statement helps in planning future investments & liquidity needs.

📌 Advanced Accounting Concepts with Tax & Depreciation