Profit after tax and interest is ₹1,60,000.
Tax rate is 20%.
10% long term borrowing is ₹20,00,000.
Find profit before tax and after interest.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs. 2,00,000
Profit after tax is what is left of profit before tax once tax is paid. With a tax rate of 20%, profit after tax is 80% of profit before tax, so profit before tax is found by working back from 80%.
Profit after tax and interest = Rs. 1,60,000
Profit before tax = Profit after tax × 100/(100 − Tax rate)
= Rs. 1,60,000 × 100/80
= Rs. 2,00,000
The 10% long-term borrowing of Rs. 20,00,000 is not needed here: the profit asked for is after interest, so the interest of Rs. 2,00,000 has already been deducted. It would be needed only for profit before interest and tax (Rs. 4,00,000) or the interest coverage ratio.
NCERT (2026-27 edition):
|
