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Question
From the following information calculate the capital gearing ratio:
| Balance Sheet (Extract) as on 31.03.2018 | |
| Particulars | Amount ₹ |
| I. EQUITY AND LIABILITIES | |
| 1. Shareholders Funds | |
| (a) Share capital | |
| Equity share capital | 4,00,000 |
| 5% Preference share capital | 1,00,000 |
| (b) Reserves and surplus | |
| General reserve | 2,50,000 |
| Surplus | 1,50,000 |
| 2. Non-current Liabilities | |
| Long-term borrowings (6% Debentures) | 3,00,000 |
| 3. Current liabilities | |
| Trade payables | 1,20,000 |
| provision for tax | 30,000 |
| Total | 13,50,000 |
Sum
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Solution
Capital gearing ratio = `"Funds bearing fixed interest (or) fixed dividend interest"/"Equity shareholders fund"`
Funds bearing fixed interest (or) fixed dividend
= 5% Preference share capital + 6% debentures
= 1,00,000 + 3,00,000
= Rs. 4,00,000
Equity shareholders fund
= Equity share capital + general reserve + Surplus
= 4,00,000 + 2,50,000 + 1,50,000
= Rs. 8,00,000
Capital gearing ratio = `400000/800000` = 0.5 : 1
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