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Accounting Ratios — Accountancy STD 12 Commerce — Question

CBSE BoardEnglish MediumSTD 12 CommerceAccountancyAccounting Ratios3 Marks
Question
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
✓

Answer

Interest on 10% Debentures $=50,000\times\frac{10}{100}=5,000$
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 $=\frac{\text{Net Profit before Interest and Tax}}{\text{Interest}}$
$=\frac{94,000}{10,000}=9.4\text{ times}$

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