Question

Calculate Debt Equity Ratio from the following: Equity Share Capital Rs.5,00,000 General Reserve Rs.1,00,000Accumulated Profits Rs.50,00010% Debentures.Rs.1,30,000Current Liabilities. Rs.1,00,000Preliminary Expenses. Rs.10,000​

Answer 1

Explanation:

Long-term debt = Debentures = ₹1,30,000

Shareholders fund = (Equity share capital + General reserve + Accumulated profits) - preliminary expenses

So shareholder's fund = (₹5,00,000+₹1,00,000+₹50,000) - ₹10,000 = ₹6,40,000

So, Debit-equity ratio =

Long term debt/shareholder's fund

₹1,30,000/₹6,40,000 = 0.203:1