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Question
From the following, calculate (a) Debt Equity Ratio (b) Total Assets to Debt Ratio (c) Proprietary Ratio.
| Rs. | |
| Equity Share Capital | 75,000 |
| Preference Share Capital | 25,000 |
| General Reserve | 45,000 |
| Balance in the Statement of Profits and Loss | 30,000 |
| Debentures | 75,000 |
| Trade Payables | 40,000 |
| Outstanding Expenses | 10,000 |
Solution
a ) debt Equity Ratio = `"Debt"/ "Equity"`
Equity/ Shareholder funds = Equity Share Capital + Preference Share Capital + General Reserve + Accumulated Profit
= 75,000 + 25,000 + 45,000 + 30,000
Debt = Debentures = 75,000
Debt Equity ratio = `[75,000]/[1,75,000] = 3/7 = 0.43 : 1`
b) Total Assets to debt Ratio = `"Total assets"/"Debt"`
Total Assets = Equity Share Capital + Preference share Capital + General Reserve + Accumulated Profits + Debentures + Sundry Creditors + Outstanding Expenses (∵ Total liabilities is equal to total assets)
= 75,000 + 25,000 + 45,000 + 30,000 + 75,000 + 40,000 + 10,000
= 3,00,000
Total Assets to Debt Ratio = `[3,00,000]/[75,000] = 4 : 1`
C) Proprietary Ratio = `"Shareholder Funds"/"Net Assets"`
Proprietary Ratio = `[175,000]/[3,00,000] = 7/12 = 7 : 12 or 0.58 : 1`
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