Interest Coverage Ratio
Question 66:
If Net Profit before Interest and Tax is ₹10,00,000 and 10% Long-term Funds is ₹20,00,000, find Interest Coverage Ratio.
Answer:
Net Profit before Interest and Tax = 10,00,000
Interest = 2,00,000
Interest Coverage Ratio= Net Profit before Interest and Tax/Interest
Interest Coverage Ratio =10,00,000/2,00,000
Interest Coverage Ratio = 5 times
Question 67:
From the following information, calculate Interest Coverage Ratio: Profit after Tax ₹4,25,000; Tax ₹75,000; Interest on Long-term Funds ₹1,25,000.
Answer:
Profit before Interest and Tax = Profit after Tax + Tax +Interest
Profit before Interest and Tax = 4,25,000 + 75,000 + 1,25,000
Profit before Interest and Tax = 6,25,000
Interest Coverage Ratio= Net Profit before Interest and Tax/Interest
Interest Coverage Ratio =6,25,000/1,25,000=5 times
Question 68:
From the following information, calculate 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.
Answers;
Interest coverage ratio = net profit before interest and tax / interest on long term debt
Interest coverage ratio = 2,27,000/ 27,000
Interest coverage ratio = 8.41 times
Working notes;
Wn-1
Net profit after interest and tax 1,20,000
Rate of income tax 40%
Net profit before tax= 60%
Net profit before tax=1,20,000×100/60=2,00,000
Wn-2
Interest on long term borrowings= 27,000
Interest on debenture= 1,00,000× 15 / 100= 15,000
Interest on 12% Mortgage loan= 1,00,000×12 / 100= 12,000
Net profit before interest and tax= 2,00,000+ 27,000 =2,27,000
Question 69:
From the following information, calculate Interest Coverage Ratio:
|
Particulars |
₹ |
|
Profit after Tax |
6,30,000 |
|
Tax Rate |
30% |
|
15% Debentures |
20,00,000 |
|
Equity Share Capital |
10,00,000 |
(CBSE 2025)
Answer:
Interest
Coverage Ratio 
Interest
Coverage Ratio 
= 4 Times
Profit before Interest and Tax = Profit after Tax + Tax + Interest
Profit before Interest and Tax = 6,30,000 + 2,70,000 + 3,00,000
Tax = 
= 2,70,000
Interest
on long - term borrowings = 
= 3,00,000
Question 70:
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=50,000×10/1000=5,000
Profit before Interest and Tax = Profit after Tax + Tax + Interest on Debentures + Interest on Long-term Loans from Bank
Profit before Interest and Tax = 75,000 + 9,000 + 5,000 + 5,000
Profit before Interest and Tax = 94,000
Total Interest Amount = Interest on Debentures + Interest on Long-term loans from Bank
Total Interest Amount = 5,000 + 5,000
Total Interest Amount = 10,000
Interest Coverage Ratio = Net Profit before Interest and Tax/Interest
Interest Coverage Ratio = 94,000/10,000
Interest Coverage Ratio = 9.4 times
Ts Grewal Solution 2026-2027
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Class 12 / Volume – III
Chapter 4 – Accounting Ratios