Question

63. From the following details, calculate Interest Coverage Ratio:
Net Profit after Tax
* 7,00,000
6% Debentures
20,00,000
Tax Rate 30%
(CBSE Sample Paper 2019)​

Answer 1

Answer:  Net Profit Before Tax – Tax paid = Net Profit After Tax

x – 30/100 (x) = ₹7,00,000

x = ₹ 7,00,000 (100/70)

x = ₹ 10,00,000

Net Profit Before Tax = ₹ 10,00,000

Interest Payment = 6/100 (₹ 20,00,000) = ₹ 1,20,000

Earning Before Interest and Tax = Net Profit Before Tax + Interest Payment

= ₹ 10,00,000 + ₹ 1,20,000

= ₹11,20,000

Interest Coverage ration =Earning Before Interest and TaxInterest Expense  

Interest Coverage Ratio =₹11,20,000/₹1,20,000

Interest Coverage Ratio =9.33 times.

hope you understood