Debt equity ratio of a company is 1 : 2 . Purchase of a fixed asset for rupees 5,00,000 on long term credit base will increase, decrease aur not change the ratio?
Answers
Debt- Equity Ratio =
Shareholder
′
sFunds
Long−TermDebt
Total Assets = Total Liabilities + Shareholder's Funds
Total Assets = Current Assets + Non-Current Assets
= 1,80,000 + 7,20,000 = 9,00,000
Total Liabilities = Long Term Borrowings + Long-Term Provisions + Current Liabilities
= 4,00,000 +2,00,000+1,00,000 = 7,00,000
Therefore, Shareholder's funds = Total Assets Total Liabilities
= 9,00,000 7,00,000 = 2,00,000 Long-Term Debt = Long Term Borrowings + Long-term Provisions = 4,00,000+2,00,000 = Rs 6,00,000
Therefore, Debt -equity ratio =
2,00,000
6,00,000
=3:1
(b) Current ratio =
CurrentLiabilities
CurrentAssets
(1) A bill payable of Rs. 9,000 was met on maturity will affect:
1.Trade Payable will reduce by Rs.9,000
2.Cash will reduce by Rs.9,000
Simultaneous decreases in current assets and current liabilities will improve current ratio
Issue of share of Rs.10,00,000 to vendor of machinery will affect the following
1.Increases on the balance of machinery
2.Increase in the amount of share capital
This transaction will neither affect current liabilities nor current assets.Thus ,current ratio will remain unchanged.