kindly explain the answer to this question:

A company projected Profit and Loss account is as-

Rs. Rs.

Sales 4200000

Cost of goods sold 3060000

Gross profit 1140000

Administrative expenses 280000

Selling expenses 260000 540000

Profit before tax 600000

Provision for taxation 200000

Profit after tax 400000

The cost of goods sold is as follows-

Material used 1680000

Wages 1250000

Depreciation 470000

3400000

Less- Stock of finished goods (10% of goods produced not yet sold) 340000

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3060000

The figures above relates only to finished goods and not to WIP goods which is equal to 15% of the year's

production (in terms of physical units) will be in process on an average, requiring full materials but only

40% of other expenses. The company believes in keeping material equal to two months consumption in

stock.

All expenses are paid one month in arrears. Suppliers of material will extend 1 12 month credit. Sales will

be 20% for cash and the rest at two months credit. 90% of the income tax will be paid in advance in

quarterly installments. The cash balance is Rs. 100000 in cash.