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 Accumulated Profits 30,000 Debentures 75,000 Sundry Creditors 40,000 Outstanding Expenses 10,000

Answer 1

Given : Rs Equity Share Capital 75,000 Preference Share Capital 25,000 General Reserve 45,000 Accumulated Profits 30,000 Debentures 75,000 Sundry Creditors 40,000 Outstanding Expenses 10,000

 

Solution :

(a) Calculation of debt equity ratio:  

Debt equity ratio = Debt ( long term loans) / Equity (shareholders fund)

Debt = debentures = ₹ 75000

Equity =  Equity share capital + preference share capital + General reserve + Accumulated profits + preliminary expenses

= ₹ 75000 + ₹ 25000 + ₹ 50000 + ₹  30000 - ₹ 5000

= ₹ 1,75,000

So debt equity ratio = ₹ 75000/₹ 175000  

= 3 : 7 = 0.43 times

Hence, debt equity ratio is 3 : 7 = 0.43 times

 

(b) Calculation of total assets to debt ratio :  

Total assets to debt ratio =  Total assets/ Debt

Debt = debentures = ₹ 75000

Total assets = Total liabilities   =  Equity share capital + preference share capital + General reserve + Accumulated profits + Debentures + Trade payables + outstanding expenses  

= ₹ 75,000 + ₹ 25,000 + ₹ 45,000 + ₹  30,000 + ₹ 75,000 + ₹ 40,000 + ₹ 10,000

= ₹ 3,00,000

So, total assets to debt ratio = Total assets/ Debt

= ₹ 3,00,000/₹ 75,000

= 4 : 1

Hence,total assets to debt ratio is 4 : 1.

 

(c) calculation of proprietary ratio:  

Proprietary Ratio = Proprietors fund or shareholders fund/ Total assets

Proprietors fund = Equity share capital + preference share capital + General reserve + Accumulated profits

=  ₹ 75,000 + ₹ 25,000 + ₹ 45,000 + ₹  30,000

= ₹ 1,75,000

Total assets = ₹ 3,00,000

Proprietary Ratio = ₹ 1,75,000/₹ 3,00,000

= 175/300

= 7/12

= 7 : 12

= 0.58 : 1

Hence, Proprietary Ratio is 0.58 : 1.

Hope this answer will help you..

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