Question

From the following information calculate Interest coverage Ratio. Profit after Interest and Tax Rs. 6,00.000 10% Debentures Rs. 8,00,000 Rate of Income Tax 40%​

Answer 1

Given ,

profit after interest and tax rs.600000

10% debentures is 800000

Rate of income tax is 40%

We know that,

Interest coverage ratio _

Profit before interest and tax/ interest on long-term debt

Net profit before tax _ net profit after T-tax

Tax = 40/100× 600000_240000

Net profit before tax

600000-240000_360000

debentures_10/100× 800000_ 80000

now ,

Net profit before tax

360000+80000_440000

then

interest coverage ratio_440000/80000 5.5:1 answer