Comprehension
Ghosh Babu surveyed his companies and obtained the following data. Income tax is paid from profit before tax and the remaining amount is apportioned to dividend and retained earnings. The retained earnings were accumulated into reserves. The reserves at the beginning of $1991$ were Rs. $80$ lakh.
| Figure (Rs. in lakh) | $1994$ | $1993$ | $1992$ | $1991$ |
|---|---|---|---|---|
| Share capital | $0310$ | $0205$ | $0098$ | $0098$ |
| Sales | $6435$ | $4725$ | $2620$ | $3270$ |
| Profit before tax | $0790$ | $0525$ | $0170$ | $0315$ |
| Dividends | $0110$ | $0060$ | $0030$ | $0030$ |
| Retained earnings | $0400$ | $0245$ | $0070$ | $0140$ |
Question: 1
In which year was the tax per rupee of 'profit before tax' lowest?
In which year was the tax per rupee of 'profit before tax' lowest?
Show Hint
When dealing with "per rupee" ratios, ensure both numerator and denominator are in the same unit (lakh here), and compute to consistent decimal places for comparison.
Updated On: Aug 6, 2025
- 1991
- 1992
- 1993
- 1994
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The Correct Option is D
Solution and Explanation
We are given:
\[
\text{Tax} = \text{Profit before tax} - (\text{Dividends} + \text{Retained earnings})
\]
We then calculate \(\text{Tax per rupee of profit before tax} = \frac{\text{Tax}}{\text{Profit before tax}}\).
Year-wise calculation:
- 1991:
Profit before tax = 315 lakh
Dividends + Retained earnings = 30 + 140 = 170 lakh
Tax = 315 - 170 = 145 lakh
Tax per rupee of PBT = 145 / 315 ≈ 0.4603 - 1992: PBT = 170 lakh
Div + Retained = 30 + 70 = 100 lakh
Tax = 170 - 100 = 70 lakh
Tax ratio = 70 / 170 ≈ 0.4118 - 1993: PBT = 525 lakh
Div + Retained = 60 + 245 = 305 lakh
Tax = 525 - 305 = 220 lakh
Tax ratio = 220 / 525 ≈ 0.4190 - 1994: PBT = 790 lakh
Div + Retained = 110 + 400 = 510 lakh
Tax = 790 - 510 = 280 lakh
Tax ratio = 280 / 790 ≈ 0.3544 The lowest ratio is for 1994 (≈ 0.3544).
Dividends + Retained earnings = 30 + 140 = 170 lakh
Tax = 315 - 170 = 145 lakh
Tax per rupee of PBT = 145 / 315 ≈ 0.4603 - 1992: PBT = 170 lakh
Div + Retained = 30 + 70 = 100 lakh
Tax = 170 - 100 = 70 lakh
Tax ratio = 70 / 170 ≈ 0.4118 - 1993: PBT = 525 lakh
Div + Retained = 60 + 245 = 305 lakh
Tax = 525 - 305 = 220 lakh
Tax ratio = 220 / 525 ≈ 0.4190 - 1994: PBT = 790 lakh
Div + Retained = 110 + 400 = 510 lakh
Tax = 790 - 510 = 280 lakh
Tax ratio = 280 / 790 ≈ 0.3544 The lowest ratio is for 1994 (≈ 0.3544).
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Question: 2
In which year was the sales per rupee of share capital highest?
In which year was the sales per rupee of share capital highest?
Show Hint
Double-check the raw numbers before assuming patterns — in ratio problems, small denominators can produce surprisingly high values.
Updated On: Aug 6, 2025
- 1991
- 1992
- 1993
- 1994
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The Correct Option is B
Solution and Explanation
Formula:
\[
\text{Sales per rupee of share capital} = \frac{\text{Sales}}{\text{Share capital}}
\]
- 1991: 3270 / 98 ≈ 33.37
- 1992: 2620 / 98 ≈ 26.73 (Wait: seems smaller — recheck data table) From the table: 1992 share capital = 98 lakh, sales = 2620 lakh
Ratio = 2620 / 98 ≈ 26.73
Actually, check 1994 and 1993 also: - 1993: 4725 / 205 ≈ 23.05
- 1994: 6435 / 310 ≈ 20.76 Comparing, the highest ratio is 1991 (≈ 33.37), not 1992. Correction: The answer is (a) 1991.
- 1992: 2620 / 98 ≈ 26.73 (Wait: seems smaller — recheck data table) From the table: 1992 share capital = 98 lakh, sales = 2620 lakh
Ratio = 2620 / 98 ≈ 26.73
Actually, check 1994 and 1993 also: - 1993: 4725 / 205 ≈ 23.05
- 1994: 6435 / 310 ≈ 20.76 Comparing, the highest ratio is 1991 (≈ 33.37), not 1992. Correction: The answer is (a) 1991.
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Question: 3
In which year the profit before tax per rupee of sales was the highest?
In which year the profit before tax per rupee of sales was the highest?
Show Hint
Ensure ratios are compared using the same decimal format to avoid misinterpretation of closeness in values.
Updated On: Aug 6, 2025
- 1991
- 1992
- 1993
- 1994
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The Correct Option is B
Solution and Explanation
Formula:
\[
\text{PBT per rupee of sales} = \frac{\text{PBT}}{\text{Sales}}
\]
- 1991: 315 / 3270 ≈ 0.0963
- 1992: 170 / 2620 ≈ 0.0649
- 1993: 525 / 4725 ≈ 0.1111
- 1994: 790 / 6435 ≈ 0.1228 Here, 1994 has the highest ratio, so answer should be (d) 1994.
- 1992: 170 / 2620 ≈ 0.0649
- 1993: 525 / 4725 ≈ 0.1111
- 1994: 790 / 6435 ≈ 0.1228 Here, 1994 has the highest ratio, so answer should be (d) 1994.
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Question: 4
In which year was the percentage addition to reserves over previous year reserves the highest?
In which year was the percentage addition to reserves over previous year reserves the highest?
Show Hint
When computing “percentage addition,” divide the year’s increment by the reserves at the beginning of that year.
Updated On: Aug 6, 2025
- 1991
- 1992
- 1993
- 1994
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The Correct Option is B
Solution and Explanation
We track reserves: starting reserves in 1991 = 80 lakh.
End-year reserves each year = start reserves + retained earnings.
- End 1991: 80 + 140 = 220 lakh (increase 140 on base 80 → 175%)
- End 1992: 220 + 70 = 290 lakh (increase 70 on base 220 → 31.82%)
- End 1993: 290 + 245 = 535 lakh (increase 245 on base 290 → 84.48%)
- End 1994: 535 + 400 = 935 lakh (increase 400 on base 535 → 74.77%) Highest % increase is in 1991 (175%). So correct answer is (a) 1991.
- End 1992: 220 + 70 = 290 lakh (increase 70 on base 220 → 31.82%)
- End 1993: 290 + 245 = 535 lakh (increase 245 on base 290 → 84.48%)
- End 1994: 535 + 400 = 935 lakh (increase 400 on base 535 → 74.77%) Highest % increase is in 1991 (175%). So correct answer is (a) 1991.
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Question: 5
Amount of the reserves at the end of 1994 is:
Amount of the reserves at the end of 1994 is:
Show Hint
For cumulative reserve calculations, maintain a running total, adding each year’s retained earnings to the prior year-end reserve.
Updated On: Aug 6, 2025
- Rs. 935 lakh
- Rs. 915 lakh
- Rs. 230 lakh
- None of these
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The Correct Option is A
Solution and Explanation
We add retained earnings each year sequentially from starting reserve 80 lakh:
- End 1991: 80 + 140 = 220 lakh
- End 1992: 220 + 70 = 290 lakh
- End 1993: 290 + 245 = 535 lakh
- End 1994: 535 + 400 = 935 lakh
Thus, reserves at end 1994 = Rs. 935 lakh.
- End 1992: 220 + 70 = 290 lakh
- End 1993: 290 + 245 = 535 lakh
- End 1994: 535 + 400 = 935 lakh
Thus, reserves at end 1994 = Rs. 935 lakh.
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