Question

From the following Balance Sheet of Global Ltd., you are required to calculate Return on Investment for the year 2018-19:

BALANCE SHEET OF GLOBAL LTD. as at 31st March, 2019
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 2018-19 is rs 9,72,000.

Answer 1

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%