Question 44 of 47intermediate🔧 ApplyNumerical4 marks

From the following, calculate (a) Debt-Equity Ratio (b) Total Assets to Debt Ratio (c) Proprietary Ratio. Equity Share Capital Rs. 75,000; Share application money pending allotment Rs. 25,000; General Reserve Rs. 45,000; Balance in the Statement of Profit & Loss Rs. 30,000; Debentures Rs. 75,000; Trade Payables Rs. 40,000; Outstanding Expenses Rs. 10,000

Correct Answer

Working Notes:

  1. Shareholders' Funds (Equity) = Equity Share Capital + Share application money pending allotment + General Reserve + Balance in Statement of Profit & Loss = Rs. 75,000 + Rs. 25,000 + Rs. 45,000 + Rs. 30,000 = Rs. 1,75,000.

  2. Long-term Debts (Debt) = Debentures = Rs. 75,000.

  3. Total Assets = Shareholders' Funds + Long-term Debts + Current Liabilities (Trade Payables + Outstanding Expenses) = Rs. 1,75,000 + Rs. 75,000 + (Rs. 40,000 + Rs. 10,000) = Rs. 3,00,000.

(a) Debt-Equity Ratio: = Long-term Debts / Shareholders' Funds = 75,000 / 1,75,000 = 0.43 : 1

(b) Total Assets to Debt Ratio: = Total Assets / Long-term Debts = 3,00,000 / 75,000 = 4 : 1

(c) Proprietary Ratio: = Shareholders' Funds / Total Assets = 1,75,000 / 3,00,000 = 0.58 : 1

Exercise: Questions for Practice | Q: 19 | (Page 46)
For More Understanding

Explanation

The solution follows the standard formulas provided in the NCERT context. Equity (Shareholders' Funds) includes Share Capital, Reserves, Surplus, and Share application money pending allotment. Long-term Debt includes Debentures. Total Assets is derived by summing Equity and Liabilities. The calculated ratios match the answer key provided in the text.

Solution Steps

  1. Step 1: Calculate Shareholders' Funds by summing Equity Share Capital (75,000), Share application money (25,000), General Reserve (45,000), and Profit & Loss balance (30,000) to get Rs. 1,75,000.

  2. Step 2: Identify Long-term Debts as Debentures (Rs. 75,000).

  3. Step 3: Calculate Total Assets by summing all liabilities/equity: 1,75,000 (Equity) + 75,000 (Debentures) + 40,000 (Trade Payables) + 10,000 (Outstanding Expenses) = Rs. 3,00,000.

  4. Step 4: Calculate Debt-Equity Ratio (Debt/Equity) = 75,000 / 1,75,000 = 0.43 : 1.

  5. Step 5: Calculate Total Assets to Debt Ratio (Assets/Debt) = 3,00,000 / 75,000 = 4 : 1.

  6. Step 6: Calculate Proprietary Ratio (Equity/Assets) = 1,75,000 / 3,00,000 = 0.58 : 1.

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