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Calculate Return on Investment (Roi) from the Following Details: Net Profit After Tax ₹ 6,50,000; - Accountancy

Sum

Calculate Return on Investment (ROI) from the following details: Net Profit after Tax ₹ 6,50,000; Rate of Income Tax 50%; 10% Debentures of ₹ 100 each ₹ 10,00,000; Fixed Assets at cost ₹ 22,50,000; Accumulated Depreciation on Fixed Assets up to date ₹ 2,50,000; Current Assets ₹ 12,00,000; Current Liabilities ₹ 4,00,000.

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Solution

Net Fixed Assets = Fixed Assets (at cost) − Accumulated Depreciation

= 22,50,000 − 2,50,000 = 20,00,000

Capital Employed = Net Fixed Assets + Current Assets − Current Liabilities

= 20,00,000 + 12,00,000 − 4,00,000

= 28,00,000

Interest on 10% Debentures = 10% of 10,00,000 = 1,00,000

Let Profit before Tax be = x

Profit after Tax = Profit Before Tax − Tax

Tax Rate = 50%

∴ Tax = 0.5 x

x − 0.5 x = 6,50,000

x = 13,00,000

Net Profit before Tax = x = 13,00,000

Profit before Interest and Tax = Profit before Tax + Interest on Long-term Debt

= 13,00,000 + 1,00,000

= 14,00,000 

Return On Investment = `"Net Profit before Interest and Tax"/"Capital Employed" xx 100`

`= 1400000/2800000 xx 100 = 50 %` 

  Is there an error in this question or solution?
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APPEARS IN

TS Grewal Class 12 Accountancy - Analysis of Financial Statements
Chapter 3 Accounting Ratios
Exercise | Q 127 | Page 107
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