There are 2 students studying in the same class. The teacher has given them an assignment to analyze a situation & find out the profit. Student A follows cash system of accounting & Student B follows accrual basis of accounting. What shall be difference between the profits as calculated by both of them for the period ending 31st March 2017?

Situation:
Sales of the company during the year is Rs 5,00,000 out of which cash sales is Rs 4,00,000. The company has paid a rent in the month of January 2017 for 1 year @ Rs 30,000 per month.

Rs 1,00,000

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Rs 4,50,000

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Rs 3,70,000

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Rs 4,00,000

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Solution

The correct option is C
Rs 3,70,000

Cash Basis:
Revenue 400,000.00
Expenses 360,000.00
Profit 40,000.00

Accrual Basis:
Revenue 500,000.00
Expenses 90,000.00
Profit 4,10,000.00

Difference in Profit = 3,70,000.00

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