Read the following information carefully and answer the question.
The Balance Sheet of ABC Ltd as on 31 March 2022:
| Liabilities | Amount (₹) |
Asset | Amount (₹) |
| Share Capital Equity(₹10) | 4,00,000 | Fixed Assets | 9,50,000 |
| 12% preference shares | 1,00,000 | Current Assets | 2,34,000 |
| General Reserve | 1,84,000 | ||
| 10% Debentures | 4,00,000 | ||
| Current Liabilities | 1,00,000 | ||
| 11,84,000 | 11,84,000 |
Additional information :
1. Market price of share = 34
2. Net profit after tax = 1,50,000
3. Tax = 50,000
The return on investment will be :
Answer & explanation
Correct answer: option 4
The correct answer is option 4- 22.14%.
* Capital employed = Equity share capital + Preference share capital + general reserve + Debentures
= 4,00,000 + 1,00,000 + 1,84,000 + 4,00,000
= 10,84,000
Net profit after tax = 1,50,000
Tax = 50,000
Net profit before tax = 1,50,000 + 50,000
= 2,00,000
Interest on Debenture = 4,00,000 x 10/100
= 40,000
* Net profit before interest and tax = Net profit before tax + interest on debentures
= 2,00,000 + 40,000
= 2,40,000
Return on Investment = Profit before Interest and Tax / Capital Employed × 100
= 2,40,000/ 10,84,000 x 100
= 22.14 %