# 12th | Ts grewal 2021-2022 Question 146 to 150 | ch:4 Accounting Ratios

#### 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.

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%

#### 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.

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%

#### 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.

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%

#### 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.

 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.

#### 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.

(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%