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✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
From the following information, calculate the Interest Coverage Ratio: Net Profit after Interest and Tax ₹1,20,000; Rate of Income Tax 40%; 15% Debentures ₹1,00,000; 12% Mortgage Loan ₹1,00,000.
Net Profit after Tax represents 60% of Net Profit before Tax (100% − 40% tax rate).
Net Profit before Tax = 1,20,000 × 100 ÷ 60 = ₹2,00,000
Interest on 15% Debentures = 1,00,000 × 15% = ₹15,000
Interest on 12% Mortgage Loan = 1,00,000 × 12% = ₹12,000
Total Interest on Long-term Borrowings = 15,000 + 12,000 = ₹27,000
Net Profit before Interest and Tax = 2,00,000 + 27,000 = ₹2,27,000
Interest Coverage Ratio = 2,27,000 ÷ 27,000 = 8.41 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.69 - 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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