Identify Profit Before Interest and Tax based on following:
Profit After tax Rs 60,000
15% long term debts ₹ 10,00,000
Tax rate 40%
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) - 2,50,000.
Profit after tax = ₹60,000
Tax rate = 40%
Profit before tax = 60,000 x 100/60
= ₹1,00,000
15% interest on debenture = 10,00,000 x 15/100
= ₹1,50,000
Profit before interest and tax = Profit before tax + Interest on debentures
= 1,00,000 + 1,50,000
= ₹2,50,000