Profit after interest and tax is Rs 1,60,000.

10% Long term borrowing Rs 20,00,000

Rate of Tax : 20%.

Profit before interest and tax will be .....

Working backwards from Profit after interest and tax:

Interest on borrowing = 10% of Rs 20,00,000 = Rs 2,00,000

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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 = $\frac{1,60,000}{0.80}$ = Rs 2,00,000

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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.