Question 166:
Net Profit before Interest and Tax ₹4,00,000; 15% Long-term Debt ₹8,00,000; Shareholders' Funds ₹4,00,000. Calculate Return on Investment.
Answer:
Net Profit before Interest and Tax = 4,00,000
Capital Employed = 15% long-term Debt + Shareholders’ Funds
= 8,00,000 + 4,00,000 = 12,00,000
Return on Investment = Net profitBefore Interest and Tax ×100/ Capital Employed
= 4,00,000×100/12,00,000
= 33.33%
Question 167:
Net Profit after interest but before tax ₹1,40,000; 15% Long-term Debts 4,00,000; Shareholders' Funds ₹2,40,000; Tax Rate 50%. Calculate Return on Capital Employed.
Answer:
Return on Capital Employed = Profit Before interest, tax and dividend/ Capital Employed×100
Return on Capital Employed = 2,00,000/6,40,000×100=31.25%
Working Note:
Interest =4,00,000×15/100=60,000
Profit Before interest= Profit after interest +Interest
Profit Before interest=1,40,000+60,000=2,00,000
Capital Employed= Long-term Debts + Shareholders' Funds
Capital Employed= 4,00,000+2,40,000=6,40,000
Question 168:
With the help of the following information, calculate Return on Investment:
Net Profit after Interest and Tax ₹6,00,000; 10% Debentures ₹10,00,000; Tax @ 40%; Capital Employed ₹80,00,000.
Answer:
Profit before tax = Net Profit after Tax + Tax
100% = 60% + 40%
Profit
before tax = 
=
4,00,000
Profit before tax = 6,00,000 + 4,00,000 = 10,00,000
Interest
on long term debt = 
= 1,00,000
Profit before tax and interest = 10,00,000 + 1,00,000 = 11,00,000
Return
on Investment =
= 13.75%
Question 169:
Y Ltd.'s profit after interest and tax was ₹1,00,000. Its Current Assets were ₹4,00,000; Current Liabilities ₹2,00,000; Fixed Assets ₹6,00,000 and 10% Long-term Debt ₹4,00,000. The rate of tax was 20%. Calculate 'Return on Investment' of Y Ltd.
Answer:
Return on Investment = (Net Profit
before Interest, Tax and Dividend/ Capital Employed × 100)
Let Profit before tax be ₹100
Tax = ₹20
Profit after tax = ₹(100 – 20) = ₹80
If Profit after tax is ₹80 then profit before tax is = ₹100
If Profit after tax is ₹1,00,000 then profit before tax is = ₹(1,00,000
× 100/80) = ₹1,25,000
Interest on long-term borrowings = ₹(4,00,000 × 10/100)= ₹40,000
Profit after interest and Tax = ₹(1,25,000 + 40,000) = ₹1,65,000
Capital Employed = Fixed Assets+ Current Assets – Current Liabilities
= ₹(6,00,000 + 4,00,000 – 2,00,000) = ₹8,00,000
Return on Investment = (1,65,000/8,00,000 × 100 )= 20.625% or 20.63%
(approx.)
Question 170:
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.
Answer:
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 profitBefore Interest and Tax ×100/ Capital Employed
Return on Investment = 14,00,000 ×100 / 28,00,000=50%