Answer the questions from the passage-
Following information is provided about a Company:
Share Capital:
Equity (Rs.10) Rs. 4,00,000
12% Preference Rs. 1,00,000
General Reserve Rs. 1,84,000
10% Debentures Rs. 4,00,000
Current Liabilities Rs. 1,00,000
Fixed Assets Rs. 9,50,000
Current Assets Rs. 2,34,000
The market price of the share is Rs. 34 and the net profit after tax was Rs. 1,50,000, and the tax had amounted to Rs. 50,000.
Return on Investment is
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → 22.14%
Return on Investment (also called return on capital employed) measures how well the business uses all its long-term funds. So the profit taken is the profit before interest and tax, which belongs to all providers of long-term funds, and the base is the capital employed.
Profit before interest and tax = Rs 1,50,000 + Rs 50,000 (tax) + Rs 40,000 (10% interest on Rs 4,00,000 debentures) = Rs 2,40,000
Capital employed = Rs 4,00,000 + Rs 1,00,000 + Rs 1,84,000 + Rs 4,00,000 = Rs 10,84,000
Check from the assets side: Rs 9,50,000 + Rs 2,34,000 − Rs 1,00,000 = Rs 10,84,000
ROI = Rs 2,40,000 ÷ Rs 10,84,000 × 100 = 22.14%
The debentures are part of capital employed, so their interest is added back to the profit; taking profit after interest against funds that include the debentures would mix two different bases.
NCERT (2026-27 edition):
|
