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From the Following, Calculate (A) Debt Equity Ratio (B) Total Assets to Debt Ratio (C) Proprietary Ratio. - Accountancy

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ConceptTypes of Ratios

Question

From the following, calculate (a) Debt Equity Ratio (b) Total Assets to Debt Ratio (c) Proprietary Ratio.

  Rs.
Equity Share Capital 75,000
Preference Share Capital 25,000
General Reserve 45,000
Balance in the Statement of Profits and Loss 30,000
Debentures 75,000
Trade Payables 40,000
Outstanding Expenses 10,000

Solution

a ) debt Equity Ratio = `"Debt"/ "Equity"`

Equity/ Shareholder funds = Equity Share Capital + Preference Share Capital + General Reserve + Accumulated Profit

= 75,000 + 25,000 + 45,000 + 30,000

Debt = Debentures = 75,000

Debt Equity ratio = `[75,000]/[1,75,000] = 3/7 = 0.43 : 1`

b) Total Assets  to debt Ratio = `"Total assets"/"Debt"`

Total Assets = Equity Share Capital + Preference share Capital + General Reserve + Accumulated Profits + Debentures + Sundry Creditors + Outstanding Expenses (∵ Total liabilities is equal to total assets)

= 75,000 + 25,000 + 45,000 + 30,000 + 75,000 + 40,000 + 10,000
= 3,00,000

Total Assets to Debt Ratio = `[3,00,000]/[75,000] = 4 : 1`

C) Proprietary Ratio = `"Shareholder Funds"/"Net Assets"`

Proprietary Ratio = `[175,000]/[3,00,000] = 7/12 = 7 : 12 or 0.58 : 1`

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Solution From the Following, Calculate (A) Debt Equity Ratio (B) Total Assets to Debt Ratio (C) Proprietary Ratio. Concept: Types of Ratios.
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