Advertisement Remove all ads

The Proprietary Ratio of M Ltd. is 0.80:1 State with Reasons Whether the Following Transactions Will Increase, Decrease Or Not Change the Proprietary Ratio Issued Equity Shares to the Vendors of Machinery Purchased for Rs 4,00,000. - Accountancy

The proprietary ratio of M Ltd. is 0.80:1 State with reasons whether the following transactions will increase, decrease or not change the proprietary ratio:

1) Obtained a loan from bank Rs 2, 00,000 payable after five years.

2) Purchased machinery for cash Rs 75,000

3) Redeemed 5% redeemable preference shares Rs 1,00,000

Issued equity shares to the vendors of machinery purchased for Rs 4,00,000.

Advertisement Remove all ads

Solution

Proprietary Ratio of M Ltd. 0s.80: 1

Proprietary Ratio = "Proprietor's Funds"/"Total Assets"

 Transactions Effects Obtained a loan from bank Rs 2,00,000payable after 5 years Decrease, The total assets would increase with the amount of loan raised and proprietor’s funds remains the same Purchased machinery for cash Rs 75,00 No Change, Total Assets will increase and decrease by the same amount : Redeemed 5% Redeemable preferenceshares Rs 1,00,000 Decrease, Proprietor’s Funds and Total Assets both will decrease by the same amount but the percentage the change would be more on Proprietor’s Fund already in ratio 0.80: 1 Issued equity shares to vendors ofmachinery purchased for Rs 4,00,000 Increase, Even though both Proprietor’s Funds and Total Assets both will increase by the same amount but the percentage change would be more in Proprietor’s Fund

Concept: Share Capital - Issue and Allotment of Equity Shares
Is there an error in this question or solution?
Advertisement Remove all ads
Advertisement Remove all ads
Advertisement Remove all ads
Share
Notifications

View all notifications

Forgot password?