For Bose Ltd., profit after tax + depreciation + interest + other non-cash expenses = Rs. 16 lakh. Its preference dividend is Rs. 2 lakh and its interest is Rs. 4 lakh. Its Debt Service Coverage Ratio (DSCR) is 2 times.
What is its repayment obligation?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs. 2 lakh
Given
Profit after tax + Depreciation + Interest + Non-cash expenses = Rs. 16 lakh
Preference dividend = Rs. 2 lakh
Interest = Rs. 4 lakh
DSCR = 2
Formula: DSCR = (Profit after tax + Depreciation + Interest + Non-cash expenses) ÷ (Preference dividend + Interest + Repayment obligation)
2 = 16 ÷ (2 + 4 + Repayment obligation)
2 + 4 + Repayment obligation = 16 ÷ 2 = 8
Repayment obligation = 8 − 6 = 2
Repayment obligation = Rs. 2 lakh (Rs. 2,00,000)
Option (1) Rs. 2 lakh — Correct. It is what remains of the Rs. 8 lakh after preference dividend and interest.
Option (2) Rs. 4 lakh — Incorrect. This is the interest, which is already part of the denominator.
Option (3) Rs. 6 lakh — Incorrect. This is preference dividend plus interest (2 + 4).
Option (4) Rs. 8 lakh — Incorrect. This is the whole denominator (16 ÷ 2), before dividend and interest are taken out.
NCERT (2026-27 Edition):
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