Given:
- Profit after tax and interest = Rs 1,60,000
- Tax rate = 20%
Let Profit before tax and after interest = P
The relationship between profit before tax and profit after tax is:
Profit after tax = Profit before tax × (1 - Tax rate)
Substituting the values:
1,60,000 = P × (1 - 0.20)
1,60,000 = P × 0.80
P = 1,60,000 ÷ 0.80
P = 2,00,000
Verification:
Profit before tax and after interest = Rs 2,00,000
Less: Tax @ 20% = Rs 40,000
Profit after tax and interest = Rs 1,60,000 ✓
Note: The information about long-term borrowing is not required here since we are finding profit before tax but after interest, and the given profit of Rs 1,60,000 is already after interest deduction.
Correct Option: 3 (Rs 2,00,000)