Question 14
Interpretation of AccountsGross earnings ₦950 000
Current liabilities ₦100 000
Operating expenses ₦350 000
10% debentures ₦400 000
Shareholders' funds ₦1 300 000
Corporate tax is 30%
From the data above, calculate the returns on equity.
- A.33%
- B.35%
- C.20%
- D.30%
Show the answer and explanation
Answer: D (30%)
Explanation
Profit before tax = 950 000 − 350 000 − 40 000 debenture interest = ₦560 000. After 30% tax: ₦392 000. Return on equity = 392 000 ÷ 1 300 000 ≈ 30%.