From the following information determine Interest Coverage Ratio.
|
Profit after Tax |
₹12,00,000 |
|
Tax Rate |
20% |
|
10% Debentures |
₹50,00,000 |
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 4 times
Interest Coverage Ratio = Net Profit before Interest and Tax ÷ Interest on long-term debts
Profit before tax = ₹12,00,000 × 100/(100 − 20) = ₹15,00,000
Interest on 10% Debentures = 10% of ₹50,00,000 = ₹5,00,000
Profit before interest and tax = ₹15,00,000 + ₹5,00,000 = ₹20,00,000
Interest Coverage Ratio = ₹20,00,000 ÷ ₹5,00,000 = 4 times
NCERT (2026-27 edition):
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