Question

Profit after Tax is ₹ 15,00,000, and Tax Rate is 20%, Profit before Interest and Tax is ₹ 25,00,000 and Long-term Borrowings is ₹ 62,50,000. Calculate Rate of Interest on Long-term Borrowings.

Answer 1

Profit after Tax = ₹ 15,00,000, Rate of Tax = 20%

Let Profit before Tax = ₹ 100, Tax = ₹ 20

Profit after Tax = ₹ 100 − ₹ 20

= ₹ 80

Profit before Tax = `15,00,000 xx 100/80`

= ₹ 18,75,000

Profit before Interest and Tax = ₹ 25,00,000

Interest = ₹ 25,00,000 − ₹ 18,75,000

= ₹ 6,25,000

Interest on Long-term Borrowings = `"Principal amount of Borrowings" xx "Rate of Interest"/100`

₹ 6,25,000 = `₹ 62,50,000 xx "Rate of Interest"/100`

₹ 6,25,000 = ₹ 62,500 × Rate of Interest

Rate of Interest on Long-term Borrowings = `(₹ 6,25,000)/(₹ 62,500)`

= 10%

Rate of Interest on Long-term Borrowings is 10%.