question_answer

From the following balance sheet of Varsha Ltd as at 31st March, 2017, calculate the return on investment for the year 2016 - 2017. Balance Sheet as at 31st March, 2017

	Particulars	Note No.	31st March, 2017 Amt (Rs.)
I.	EQUITY AND LIABILITIES
	1. Shareholders' Funds
	(a) Share Capital	1	16,50,000
	(b) Reserves and Surplus (Balance of Statement of Profit and Loss)		3,75,000
	2. Non-current Liabilities
	12% Debentures		12,00,000
	3. Current Liabilities
	Trade Payables		5,10,000
	Total		37,35,000
II.	ASSETS
	1. Non-current Assets
	(a) Fixed Assets	2	28,50,000
	(b) Non-current Investment	3	2,25,000
	2. Current Assets		6,60,000
	Total		37,35,000

Notes t Accounts

	Particulars	2017 Amt (Rs.)
1.	Share Capital
	Equity Share Capital	15,00,000
	Preference Share Capital	1,50,000
		16,50,000
2.	Tangible Fixed Assets
	Fixed Assets	34,50,000
	(-) Depreciation	(60,00,000)
		28,50,000
3.	Non-current Investment
	10% Trade Investment	1,50,000
	10% Other Investment (Face value Rs. 1,06,000)	75,000
		2,25,000

Additional Information Net profit after interest and tax for the year 2016 - 17 is Rs. 3,64,500 and tax rate is 40%. Write the value which can be associated with a company which carries ratio analysis of its financial statements.

Answer:

Return on Investment (Rol) \[=\frac{\text{Net}\,\text{Profit}\,\text{before}\,\text{Interest}\,\text{and}\,\text{Tax}\,\text{(W}\text{.N}\text{.1)}}{\text{Capital}\,\text{Employed}}\times 100\]                         \[=\frac{7,41,000}{31,50,000}\times 100=23.52%\] Working Notes 1. Calculation of Net Profit before Interest and Tax Let the profit before tax = Rs. 100 Tax = 40% So, Prof it after tax =100 - 40= Rs. 60 If profit after tax is 60, then profit before tax = 100 If profit after tax is 1, then profit before tax \[=\,Rs.\frac{100}{60}\] If profit after tax is 3,64,500, then profit before tax\[=\frac{100}{60}\times 3,64,500=Rs.\,6,07,500\]

Net profit before tax	6,07,500
(+) Interest on debentures \[\left( 12,00,000\times 12/100 \right)\]	1,44,000
(-) Interest on non-trade investment \[\left( 1,05,000\times 10/100 \right)\]	(10,500)
Net profit before interest and tax	Rs. 7,41,000

2. Calculation of Capital Employed (Liabilities approach) Capital Employed = Equity Share Capital + Preference Share Capital + Reserves and Surplus (Balance of statement of profit and loss) + Long-term Loan - Non-trade Investment (book-value) = 15,00,000 + 1,50,000 + 3,75,000 + 12,00,000 \[-\] 75,000 = Rs. 31,50,000 Value shown by the company is Doing your best A company does its best by analysing the financial ratios and enabling the interested parties in taking better decisions about investing and lending.