From the following details, calculate net profit before tax:
Net Profit after tax is ₹50,000
15% Long-term debt ₹12,00,000
Tax rate 20%
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs. 62,500
Net profit after tax is what remains after tax is paid, so it is (100 − tax rate)% of the profit before tax. Gross it up by dividing by that percentage. The long-term debt is extra information here; it would matter only for interest coverage.
Net profit after tax = Rs. 50,000
After-tax share = 100% − 20% = 80%
Net profit before tax = Rs. 50,000 × 100/80 = Rs. 62,500
Adding 20% of Rs. 50,000 (giving Rs. 60,000) is the usual slip: tax is 20% of the profit before tax, not of the profit after tax.
NCERT (2026-27 edition):
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