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Question
From the following Balance Sheet of Global Ltd., you are required to calculate Return on Investment for the year 2018-19:
BALANCE SHEET OF GLOBAL LTD.
as at 31st March, 2019
|
Particulars |
Note No. |
Amount ₹ |
| I. EQUITY AND LIABILITIES
1. Shareholder's Funds |
||
|
(a) Share Capital–Equity Shares of ₹ 10 each Fully paid |
|
5,00,000 |
|
(b) Reserves and Surplus |
|
4,20,000 |
|
2. Non-Current Liabilities |
||
|
15% Long-term Borrowings |
|
16,00,000 |
|
3. Current Liabilities |
|
8,00,000 |
|
Total |
|
33,20,000 |
| II. ASSETS | ||
|
1. Non-Current Assets |
||
|
(a) Fixed Assets |
|
16,00,000 |
|
(b) Non-Current Investments: |
|
|
|
(i) 10% Investments |
|
2,00,000 |
|
(ii) 10% Non-trade Investments |
|
1,20,000 |
|
2. Current Assets |
14,00,000 | |
|
Total |
|
33,20,000 |
Additional Information: Net Profit before Tax for the year 2018-19 is rs 9,72,000.
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Solution
Return on Investment = (Net Profit before Interest, Tax and Dividend/ Capital Employed × 100)
Interest on borrowings = ₹ (16,00,000 × 15/100)= ₹ 2,40,000
Net Profit before Tax = ₹ 9,72,000
Net Profit before Interest and Tax = ₹ (9,72,000 + 2,40,000) = ₹ 12,12,000
Net Profit before Interest and Tax (excluding interest on Non-trade investments) = ₹ (12,12,000 – 12,000) = ₹ 12,00,000
Capital Employed = Shareholder’s Funds + Non-Current Liabilities – Non-Trade Investment
= ₹ (5,00,000 + 4,20,000 + 16,00,000 – 1,20,000) = ₹ 24,00,000
Return on Investment = (12,00,000/24,00,000 × 100) = 50%
