Direction for questions 1 to 4: Answer the questions based on the following information.
Ramesh surveyed his companies and obtained the following data. Income tax is paid from profit before tax and the remaining amount is distributed to dividend and retained earnings. The retained earnings were gathered into reserves. The reserves at the beginning of 1991 were Rs. 80 lakh.
Question 1. After Ramesh surveyed his companies, in which year did he find the tax per rupee of profit before tax’ to be the lowest?
Question 2. In which year was the sales per rupee of share capital highest?
Question 3. In which year the profit before tax per rupee of sales was the highest?
Question 4. In which year did Ramesh find that the percentage addition to reserves over previous years reserves the highest?
Question 5. Amount of the reserves at the end of 1993 is
a. Rs. 535 lakh
b. Rs. 515 lakh
c. Rs. 230 lakh
d. None of these
Answers and Explanations
Answer 1. (D)
We know that (Profit before tax) – Tax = Dividends + Retained earnings
∴Tax = (Profit before tax) – (Dividends + Retainedearnings)
From the given table we can calculate the tax for each year as follows:
Hence, from above table, Tax per rupee of ‘profit before tax’ is lowest for 1994.
Answer 2. (A)
Sales per rupee of share capital = Sales / Share capital
We have calculated the same for each year below:
From the table we can say that sales per rupee of the share capital is highest for 1991 i.e. 33.36
Answer 3. (D)
Profit before tax per rupee of sales = profit before tax / sales
The table below shows the calculations for each year:
Hence, profit before tax per rupee of sales is highest for 1994.
Answer 4. (A)
Percentage addition to reserves = Retained earnings / Reserves ×100
From the above calculations we find that the highest percentage addition to reserves is in 1991.
Answer 5. (A)
From the above table it is clear that the amount ofreserves at the end of 1993 = (290 + 245) = Rs. 535 lakh.
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