Page No 4.109:
Question 61:
If Net Profit before Interest and Tax is `5,00,000 and interest on Longterm Funds is `1,00,000, find Interest Coverage Ratio.
Answer:
Net Profit before Interest and Tax = 5,00,000
Interest = 1,00,000
Interest Coverage Ratio= Net Profit before Interest and Tax/Interest
Interest Coverage Ratio =5,00,000/1,00,000
Interest Coverage Ratio = 5 times
Page No 4.109:
Question 62:
From the following information, calculate Interest Coverage Ratio: Profit after Tax `1,70,000; Tax `30,000; Interest on Longterm Funds `50,000.
Answer:
Profit before Interest and Tax = Profit after Tax + Tax +Interest
Profit before Interest and Tax = 1,70,000 + 30,000 + 50,000
Profit before Interest and Tax = 2,50,000
Interest Coverage Ratio= Net Profit before Interest and Tax/Interest
Interest Coverage Ratio =2,50,000/50,000=5 times
Page No
4.109:
Question 63;
From the
following detail, calculate Interest Coverage ratio;
Net profit after Tax 
`7,00,000 
6% Debentures 
`20,00,000 
Tax Rate 30% 

Answers;
Interest coverage ratio= net profit before interest and tax/ interest on long term debt
Interest coverage ratio =11,20,000/1,20,000
Interest coverage ratio =9.33
Working
notes;
Wn1
Net profit after tax=7,00,000
Tax rate 30%
Net profit after tax = 70%
Net profit before tax=7,00,000 × 100/70
Net profit before tax= 10,00,000
Wn2
Interest on loan term borrowings=20,00,000×6/100=1,20,000
Net profit before Interest and tax= 10,00,000+1,20,000=11,20,000
Page No 4.109:
Question 64;
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;
Wn1
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
Wn2
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
Page No 4.109:
Question 65:
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 
Longterm
Loans from Bank 
50,000 
Interest
on Longterm 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 Longterm 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 Longterm 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
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