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From the Following Information, Compute Debt-equity Ratio Long-term Borrowing 8,00,000 Long Term Provision 4,00,000 Current Liabilities 2,00,000 - CBSE (Arts) Class 12 - Accountancy

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Question

From the Following information, compute Debt-Equity Ratio

  Rs
Long-Term Borrowings 8,00,000
Long-Term Provision 4,00,000
Current Liabilities 2,00,000
Non-Current-Assets 14,40,000
Current -Assets 3,60,000

Solution

Debt Equity Ratio = `"Long - Term Debt"/"Shareholder's Funds"`

Total Assets = total Liabilities + Shareholder’s Funds

Total Assets = Current Assets + Non-Current Assets
= 3,60,000 + 14,40,000 = Rs 18,00,000

Total Liabilities = Long-Term Borrowings + Long-Term Provisions + Current Liabilities
= 8,00,000 +4,00,000 + 2,00,000 = Rs 14,00,000

Therefore, Shareholder's funds = Total Assets -Total Liabilities
= 18,00,000 -14,00,000 = Rs 4,00,000

Long-Term Debt = Long Term Borrowings + Long-term Provisions
= 8,00,000 +4,00,000 = Rs  12,00,000

Therefore, Debt-equity ratio = `1200000/400000 = 3:1`

  Is there an error in this question or solution?

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Solution From the Following Information, Compute Debt-equity Ratio Long-term Borrowing 8,00,000 Long Term Provision 4,00,000 Current Liabilities 2,00,000 Concept: Solvency Ratios - Debt to Equity Ratio.
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