IPCC DEBT SERVICE RATIO QUERY

First we have to calculate the N/P from the fund frm operation as net profit is not given directly.

i.e.,

      Fund From Operation                                                            25000

(+) Non Operating Income:

     Interest/Dividend from investment             16000

     Profit on sale of fixed assets                        5000

                                                                                                          46000

(-) Non Operating Expense:

       Preliminary exp                                             12000

       Goodwill w/o                                                  15000

       Depreciation                                                   60000

       Provision for tax                                              80000

  Net Loss  (Instead of profit)                                                           (-121,000)

Earnings avail for debt service   =     (N/p +  Tax+   Int. on debt funds   + 

                                                                Non cash operating expenses +   Nonperating adujstment)

Here, it is net loss so obvsly no tax

Int on debt funds =  (50,000+12,000+20,250+26,000)

                                =    108250

Non cash operating expense = 167000 (12000+15000+60000+80000)

Non operating adjustment = N.O Exp - N.O Income

                                                     167000-(16000+5000) = 146000

Earnings avail for debt service =   (-121000)+108250+167000+146000

                                                        =  300250

Intrest + Instalments =  108250+(200000+50000)

                                       =   358250

Debt Service Coverage Ratio  =  Earn avil. for debt srvice

                                                               Int + Instalments

                                                        =   3000250

                                                              358250                 =  .84 times

The idea ratio must be 2 to 3 times. But here, it is very low bcoz of net loss.The business is running in  loss for current period. So available cash to pay off the current intrest and insalment is not sufficent.

Thanks a ton