Accountancy Part BAccounting Ratios

From the following details calculate interest coverage ratio. Net pro…

From the following details calculate interest coverage ratio.

Net profit after tax ₹1,20,000

10% long term Debt ₹20,00,000

And tax rate is 40%

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → 2 times

Profit before tax = ₹1,20,000 × 100/60 = ₹2,00,000

Interest on long-term debt = ₹20,00,000 × 10/100 = ₹2,00,000

Net profit before interest and tax = ₹2,00,000 + ₹2,00,000 = ₹4,00,000

Interest coverage ratio = ₹4,00,000 / ₹2,00,000 = 2 times

NCERT (2026-27 edition):
Interest Coverage Ratio

Extract from the NCERT textbook

NCERT (2026-27 edition):
Illustration – “From the following details, calculate interest coverage ratio: Net Profit after tax Rs. 60,000; 15% Long-term debt 10,00,000; and Tax rate 40%.”