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✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
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.
Let Profit before Tax = ₹100. Tax = ₹20. Profit after Tax = ₹80.
If Profit after Tax is ₹80, Profit before Tax is ₹100.
If Profit after Tax is ₹1,00,000, Profit before Tax = 1,00,000 × 100/80 = ₹1,25,000
Interest on Long-term Borrowings = 10% of 4,00,000 = ₹40,000
Profit before Interest and Tax = Profit before Tax + Interest = 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 = Profit before Interest, Tax and Dividend ÷ Capital Employed × 100 = 1,65,000 ÷ 8,00,000 × 100 = 20.625% (or 20.63% approx.)
Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
This guide covers "T.S. Grewal Class 12 Vol 3 Chapter 4 Q.168 - Accounting Ratios", focusing on key definitions, step-by-step concepts, applications, and revision guidelines relevant to Chapter 4 - Accounting Ratios.
It is primarily curated for Class 11 and Class 12 high school commerce, accounting, and economics students, as well as aspirants preparing for board exams or CA Foundation.
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