Question

Assuming that the Debt to Equity Ratio is 2:1, state, giving reasons, which of the following transactions
would (1) Increase; (ii) Decrease; (ii) Not alter Debt to Equity Ratio:
) Issue of new shares for cash.
(1) Conversion of debentures into equity shares.
(11) Sale of a fixed asset at profit.
(iv) Purchase of a fixed asset on long-term deferred payment basis.
(v) Payment to creditors.​

Answer 1

Answer:

Assuming that the Debt-Equity Ratio is 2 : I, state, giving reasons, which of the following transactions would (I) Increase; (ii) Decrease; (ii.) Not alter the Debt-Equity Ratio :

(i) Issue of new shares (Preference/Equity) for Cash.

(ii) Issue of new shares (Preference/Equity) against purchase of fixed asset.

(iii) Buy-back of its own shares by a Company.

(iv) Issue of Debentures for Cash.

(v) Issue of Debentures against purchase of fixed asset.