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From the Following Information, Calculate Interest Coverage Ratio: - Accountancy

Sum

From the following information, calculate Interest Coverage Ratio:

 
10,000 Equity Shares of ₹10 each 1,00,000
8% Preference Shares 70,000
10% Debentures 50,000
Long-term Loans from Bank 50,000
Interest on Long-term Loans from Bank  5,000
Profit after Tax 75,000
Tax 9,000
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Solution

Interest on 10% Debentures = `50000 xx 10/100 = 5000`

Profit before Interest and Tax = Profit after Tax + Tax + Interest on Debentures + Interest on Long-term Loans from Bank

= 75,000 + 9,000 + 5,000 + 5,000 = 94,000

Total Interest Amount = Interest on Debentures + Interest on Long-term loans from Bank

= 5,000 + 5,000 = 10,000

Interest Coverage Ratio

=`"Net Profit before Interest and Tax"/"Interest" = 94000/10000 = 9.4` times

  Is there an error in this question or solution?
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APPEARS IN

TS Grewal Class 12 Accountancy - Analysis of Financial Statements
Chapter 3 Accounting Ratios
Exercise | Q 60 | Page 98
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