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Question
The particulars of Alpha Ltd. are given below:
| Particulars | ₹ |
| Equity Share Capital | 2,00,000 |
| 5% Preference Share Capital | 60,000 |
| General Reserve | 1,20,000 |
| Non-Current Assets | 5,05,000 |
| Current Assets | 1,20,000 |
| Current Liabilities | 40,000 |
| Loan @ 10% Interest | 5,00,000 |
| Tax provided during the year | 30,000 |
| Profit for the current year after Interest and Tax (available for the shareholders) | 90,000 |
The Interest Coverage Ratio of the company will be:
Options
1.8 times
2.8 times
3.4 times
2.4 times
MCQ
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Solution
3.4 times
Explanation:
Interest Coverage Ratio = `"Net Profit before Interest and Tax"/"Fixed Interest Charges"`
Calculation of Net Profit before Interest and Tax
| ₹ | |
| Net Profit after Interest and Tax | 90,000 |
| Add: Tax provided during the year | 30,000 |
| Add: Interest on Loan @ 10% | 50,000 |
| 1,70,000 |
Interest Coverage Ratio = `(1,70,000)/(50,000)`
= 3.4 times
shaalaa.com
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