Working backwards from Profit after interest and tax:
Interest on borrowing = 10% of Rs 20,00,000 = Rs 2,00,000
Finding Profit before tax (but after interest):
When tax rate is 20%, the profit after tax represents 80% of profit before tax.
Using the formula: Profit after tax = Profit before tax × (1 - Tax rate)
Rs 1,60,000 = Profit before tax × 0.80
Profit before tax = 0.801,60,000 = Rs 2,00,000
Finding Profit before interest and tax:
Profit before interest and tax = Profit before tax + Interest
= Rs 2,00,000 + Rs 2,00,000
= Rs 4,00,000
The structure is: PBIT → (Less: Interest) → PBT → (Less: Tax) → PAT. Since we know the final PAT and need to work backwards, we first remove the tax effect, then add back the interest to reach PBIT.