Question

In th Balance sheet of a firm, the debt equity ratio is 2:1
The amount of long term Sources is as 12 lac what
is the amount
of tangible net worth of the firm ?​

Answer 1

Let’s understand some basic terms first:

Debt: Amount borrowed from outsiders

Equity: Amount invested by shareholders of the company and includes Reserves and Surplus (Term ‘Equity’ is different from the term ‘Share Capital’)

Tangible Networth (TNW) : Equity (-) Intagible Assets

Long term sources: Source of funds which are repayable over a period of time i.e. Long Term Debt AND Equity.

Now, as Long Term Source = Rs. 12 lacs, it means that Debt (+) Equity = Rs. 12 lacs.

Given the Debt: Eqity is 2:1,

We can say that,

2Equity (i.e. Debt) + Equity = Rs. 12 Lacs

I.e. 3Equity= Rs. 12 lacs

I.e. Equity= Rs. 4 lacs

Now, as the amount of Intagible Assets is not mentioned, we may assume them to be Nil.

Hence, TNW= Rs. 4 lacs.                       please mark it as branlist