Question

What will be the impact of ‘Issue of shares against the purchase of fixed assets’ on a debt-equity ratio of 1 : 1?

Answer 1

The issue of shares against the purchase of fixed assets will not change the debt-equity ratio of 1 : 1. When shares are issued in exchange for fixed assets, the company’s equity (share capital) and assets increase. However, the debt component of the ratio remains unchanged. The transaction has no effect on the company’s overall debt or equity because it includes the exchange of one asset (cash or liabilities) for another fixed asset.