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✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
From the following details, calculate the Interest Coverage Ratio:
| Particulars | Amount (₹) |
|---|---|
| Net Profit after Tax | 7,00,000 |
| 6% Debentures | 20,00,000 |
| Tax Rate | 30% |
Net Profit after Tax represents 70% of Net Profit before Tax (100% − 30% tax rate).
Net Profit before Tax = 7,00,000 × 100 ÷ 70 = ₹10,00,000
Interest on Long-term Borrowings (Debentures) = 20,00,000 × 6% = ₹1,20,000
Net Profit before Interest and Tax = 10,00,000 + 1,20,000 = ₹11,20,000
Interest Coverage Ratio = Net Profit before Interest and Tax ÷ Interest on Long-term Debt = 11,20,000 ÷ 1,20,000 = 9.33 times
Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
This guide covers "T.S. Grewal Class 12 Vol 3 Chapter 4 Q.68 - Accounting Ratios", focusing on key definitions, step-by-step concepts, applications, and revision guidelines relevant to Chapter 4 - Accounting Ratios.
It is primarily curated for Class 11 and Class 12 high school commerce, accounting, and economics students, as well as aspirants preparing for board exams or CA Foundation.
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