CA Inter P6 · Chapter 3 · Question 5 of 9
For the year, Ojas Engineering Ltd reports profit after tax of ₹ 6,00,000, depreciation of ₹ 2,00,000, interest on term loan of ₹ 3,00,000 and a principal instalment of ₹ 4,00,000 due on the term loan. The debt service coverage ratio is (to two decimals):
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) 1.57 times
Explanation
Earnings available for debt service = PAT + depreciation + interest = ₹ 6,00,000 + ₹ 2,00,000 + ₹ 3,00,000 = ₹ 11,00,000. Debt service = interest + principal instalment = ₹ 3,00,000 + ₹ 4,00,000 = ₹ 7,00,000. DSCR = ₹ 11,00,000 / ₹ 7,00,000 = 1.57 times. Leaving out the instalment, or leaving interest out of the numerator, gives the other figures.
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