Page No
4.120:
Question
146:
Calculate Return on Investment (ROI) from the following details: Net Profit after Tax ` 6,50,000; Rate of Income Tax 50%; 10% Debentures of ` 100 each ` 10,00,000; Fixed Assets at cost ` 22,50,000; Accumulated Depreciation on Fixed Assets up to date ` 2,50,000; Current Assets ` 12,00,000; Current Liabilities ` 4,00,000.
Answer:
Net Fixed Assets = Fixed Assets (at cost) − Accumulated Depreciation
= 22,50,000 − 2,50,000 = 20,00,000
Capital Employed = Net Fixed Assets + Current Assets − Current Liabilities
= 20,00,000 + 12,00,000 − 4,00,000
= 28,00,000
Interest on 10% Debentures = 10% of 10,00,000 = 1,00,000
Let Profit before Tax be = x
Profit after Tax = Profit Before Tax − Tax
Tax Rate = 50%
∴ Tax = 0.5 x
x − 0.5 x = 6,50,000
x = 13,00,000
Net Profit before Tax = x = 13,00,000
Profit before Interest and Tax = Profit before Tax + Interest on Long-term Debt
= 13,00,000 + 1,00,000
= 14,00,000
Return on Investment = Net
profit Before Interest and Tax ×100/
Capital Employed
Return on Investment = 14,00,000
×100 / 28,00,000=50%
Page No
4.120:
Question
147:
From the following Balance Sheet of Global Ltd., you are required to calculate Return on Investment for the year 2020-21:
|
BALANCE SHEET OF GLOBAL LTD. as at 31st March, 2021 |
||
|
Particulars |
Note No. |
Amount ` |
|
I. EQUITY AND LIABILITIES 1. Shareholder's Funds |
|
|
|
(a) Share Capital–Equity Shares of ` 10 each Fully paid |
|
5,00,000 |
|
(b) Reserves and Surplus |
|
4,20,000 |
|
2. Non-Current Liabilities |
|
|
|
15% Long-term Borrowings |
|
16,00,000 |
|
3. Current Liabilities |
|
8,00,000 |
|
Total |
|
33,20,000 |
|
II. ASSETS |
|
|
|
1. Non-Current Assets |
|
|
|
(a) Fixed Assets |
|
16,00,000 |
|
(b) Non-Current Investments: |
|
|
|
(i) 10% Investments |
|
2,00,000 |
|
(ii)
10% Non-trade Investments |
|
1,20,000 |
|
2. Current Assets |
|
14,00,000 |
|
Total |
|
33,20,000 |
Additional Information: Net Profit before Tax for the year 2020-21 is ` 9,72,000.
Answer:
Return on Investment = (Net Profit before Interest, Tax and
Dividend/ Capital Employed × 100)
Interest on borrowings = ` (16,00,000 × 15/100)= ` 2,40,000
Net Profit before Tax = ` 9,72,000
Net Profit before Interest and Tax = ` (9,72,000 + 2,40,000) = ` 12,12,000
Net Profit before Interest and Tax (excluding interest on Non-trade investments)
= ` (12,12,000 –
12,000) = ` 12,00,000
Capital Employed = Shareholder’s Funds + Non-Current Liabilities – Non-Trade
Investment
= ` (5,00,000 +
4,20,000 + 16,00,000 – 1,20,000) = ` 24,00,000
Return on Investment = (12,00,000/24,00,000 × 100) = 50%
Page No
4.120:
Question
148:
Following is the Balance Sheet of the Bharati
Ltd. as at 31st March, 2021:
|
Particulars |
Note No. |
Amount ( `) |
|
|
I. EQUITY AND LIABILITIES 1. Shareholder's Funds |
|
|
|
|
(a) Share Capital |
|
7,50,000 |
|
|
(b) Reserves and Surplus: |
|
|
|
|
Surplus, i.e., Balance in Statement of Profit and Loss: |
|
|
|
|
Opening Balance |
6,30,000 |
|
|
|
Add: Transfer from Statement of Profit and Loss |
14,58,000 |
|
20,88,000 |
|
2. Non-Current Liabilities |
|
|
|
|
15% Long-term Borrowings |
|
24,00,000 |
|
|
3. Current Liabilities |
|
12,00,000 |
|
|
Total |
|
64,38,000 |
|
|
II. ASSETS |
|
|
|
|
1. Non-Current Assets |
|
|
|
|
(a) Fixed Assets |
|
27,00,000 |
|
|
(b) Non-Current Investments: |
|
|
|
|
(i) 10% Investments |
|
3,00,000 |
|
|
(ii) 10% Non-trade Investments |
|
1,80,000 |
|
|
2. Current Assets |
|
32,58,000 |
|
|
Total |
|
64,38,000 |
|
You are required to calculate Return on Investment for the year 2020-21 with reference to Opening Capital Employed.
Answer:
Return on Investment = (Net Profit before Interest, Tax and
Dividend/ Capital Employed × 100)
Interest on borrowings = ` (24,00,000 × 15/100) = `3,60,000
Net Profit before Interest and Tax = Net Profit after tax + Interest on
borrowings – Interest received on Non-trade Investments
= ` (14,58,000 +
3,60,000 – 18,000)
=
` 18,00,000
Opening
Capital Employed = Shareholder’s Funds (Opening) + Non-Current Liabilities
(Opening) – Non-Trade Investment
= `(7,50,000 + 6,30,000 + 24,00,000 – 1,80,000)
= `36,00,000
Return on Investment = (18,00,000/36,00,000
× 100) = 50%
Page No
4.121:
Question
149:
State with reason whether the following transactions will
increase, decrease or not change the 'Return on Investment' Ratio:
(i) Purchase of machinery worth `10,00,000
by issue of equity shares.
(ii) Charging depreciation of `25,000 on machinery.
(iii) Redemption of debentures by cheque `2,00,000.
(iv) Conversion of 9% Debentures of `1,00,000 into equity shares.
Answer:
|
Transaction |
Impact |
|
Purchase
of machinery worth ` 10,00,000 by issue of equity
shares. |
Issue
of shares will lead to an increase in the capital employed by
` 10,00,000.But profit remains
intact and so there will be a decline in the return on investment ratio. |
|
Charging
depreciation of ` 25,000 on machinery. |
Simultaneous
decrease in profits and capital employed by `
25,000 will lead to a decline in return on investment ratio. |
|
Redemption
of debentures by cheque ` 2,00,000. |
Redemption
of debentures will lead to a decrease in the capital employed by ` 2,00,000. But profit remains
intact and so there will be an increase in the return on investment ratio. |
|
Conversion
of 9% Debentures of ` 1,00,000 into equity shares. |
Decrease
in debentures and increase in share capital causing a simultaneous increase
and decrease in capital employed will leave the return on investment ratio
unchanged. |
Page No
4.121:
Question
150:
Opening Inventory `80,000; Purchases `4,30,900; Direct Expenses `4,000; Closing Inventory `1,60,000; Administrative Expenses `21,100; Selling and Distribution Expenses `40,000; Revenue from Operations, i.e., Net Sales `10,00,000. Calculate Inventory Turnover Ratio; Gross Profit Ratio; and Opening Ratio.
Answer:
(i)
Opening Inventory = 80,000
Closing Inventory = 1,60,000
Cost of Goods Sold = Opening Inventory + Purchases + Direct Expenses − Closing Inventory
= 80,000 + 4,30,900 + 4,000 − 1,60,000
= 3,54,900
Average Inventory= Opening Inventory+ Closing Inventory/2
=80,000+90,000/2
=1,20,000
Inventory Turnover Ratio= Cost of Goods Sold/ Average Inventory
=3,54,000/1,20,000
=2.96 Times
(ii)
Sales = 10,00,000
Gross Profit = Net Sales − Cost of Goods Sold
= 10,00,000 − 3,54,900 = 6,45,100
Gross Profit Ratio= Gross profit ×100/Net Sales
= 645000×100/10,00,000
=64.51%
(iii)
Operating Expenses = Administration Expenses + Selling and Distribution Expenses
= 21,100 + 40,000 = 61,100
Operating Cost = Cost of Goods Sold+ Operating Expenses
=3,54,900+61,100=4,16,000
Operating Ratio= Operating Cost/ Net Sales ×100
=4,16,000/10,00,000× 100
= 41.6%
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