Question

The debt equity ratio of a company is 1:1 state giving reasons, (any four) which o
following would improve, reduce or not change the ratio:
(1)Purchase, of machinery for cash
(ii) Purchase of goods on credit
(iii) Sale of furniture at cost
(iv)Sale of goods at a profit
(v) Redemption of debentures at a premium
​

Answer 1

Explanation:

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Answer 2

The debt-equity ratio of a company improve, reduce or not change ratio as follow:-

Explanation:

(i) The purchase of machinery for currency will lessen the whole quick assets but the total current liabilities will continue unchanged. Hence, the quick ratio will reduce.

(ii) Purchase of goods on credit will enhance the whole current liabilities but the total quick assets will begin again unchanged. Hence, the quick ratio will reduce.

Hence, the quick ratio will reduce.

(iii) The sale of furniture at expense will improve the whole quick assets. Hence, the quick ratio will enhance.

(iv) The sale of interests at a profit will improve the whole quick assets. Hence, the quick ratio will enhance.

(v) The quick ratio will not alter as both quick assets & current liabilities (as redeemable debentures as per Schedule III are existing liabilities) will be lessened with the amount expended.