Question

If Total Assets are ₹ 1,25,000, Total Debts, i.e., external debts are ₹ 1,00,000 and Current Liabilities are ₹ 50,000, Debt-Equity Ratio will be ______.

पर्याय

• 1 : 1

• 1 : 2

• 2 : 1

• None of these.

Answer 1

If Total Assets are ₹ 1,25,000, Total Debts, i.e., external debts are ₹ 1,00,000 and Current Liabilities are ₹ 50,000, Debt-Equity Ratio will be 2 : 1.

Explanation:

Given:

Total Assets = ₹ 1,25,000

Total Debts (External Debts) = ₹ 1,00,000

Current Liabilities = ₹ 50,000

$$\begin{aligned} \text{Long-term Debt} &= \text{Total Debts} - \text{Current Liabilities} \\ &= 1,00,000 - 50,000 \\ &= {₹\ 50,000} \end{aligned}$$ 

We know that:
$$\text{Total Assets} = \text{Equity (Shareholders' Funds)} + \text{Total Debts}$$

Therefore:
$$\begin{aligned} \text{Equity} &= \text{Total Assets} - \text{Total Debts} \\ &= 1,25,000 - 1,00,000 \\ &= {₹\ 25,000} \end{aligned}$$ 

Now, the Debt-Equity Ratio formula is:
$$\begin{aligned} \text{Debt-Equity Ratio} &= \frac{\text{Long-term Debt}}{\text{Equity}} \\ &= \frac{50,000}{25,000} = {2 : 1} \end{aligned}$$