Question 42 Chapter 4 of +2-B - T.S. Grewal 12 Class

Question 42 Chapter 4 of +2-B

42. Assuming that the Debt to Equity Ratio is 2: 1, state giving reasons, which
of the following transactions would (i) Increase; (ii) Decrease; (iii) Not alter Debt to Equity Ratio:

1. Issue of new Equity Shares for cash.
2. Conversion of debentures into equity shares.
3. Sale of fixed assets at profit.
4. Purchase of fixed assets on long-term deferred payment basis.
5. Payment to creditors.

 

 

The solution of Question 42 Chapter 4 of +2-B: -

Transactions	Impact on Debt to Equity Ratio	Reason
(i) Issue of new Equity Shares for cash.	Decrease	The amount of Shareholders’ Fund is Increase and no change in Debts of Company.
(ii) Conversion of debentures into equity shares.	Decrease	There is an amount of Equity increase and Debt of Company is decrease.
(iii) Sale of fixed assets at profit.	Decrease	Debt is not changed but, Equity of Company is increased by adding profit in surplus.
(iv) Purchase of fixed assets on long-term deferred payment basis.	Increase	Debts of the Company is Increase and Equity of Company not Changed.
(v)Payment to creditors.	No change	Debts and Equity of Company not Changed. This effect on the Assets of the Company.

 

 

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Also, Check out the solved question of previous Chapters: -

T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)

• Chapter No. 1 - Financial Statement of Not-For-Profit Organisations
• Chapter No. 2 - Accounting for Partnership Firms - Fundamentals
• Chapter No. 3 - Goodwill: Nature and Valuation
• Chapter No. 4 - Change in Profit-Sharing Ratio Among the Existing Partners
• Chapter No. 5 - Admission of a Partner
• Chapter No. 6 - Retirement/Death of a Partner
• Chapter No. 7 - Dissolution of a Partnership Firm

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 8 - Company Accounts -  Accounting for Share Capital
• Chapter No. 9 - Company Accounts - Issue of Debentures
• Chapter No. 10 - Redemption of Debentures

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 1 - Financial Statements of a Company
• Chapter No. 2 - Financial Statement Analysis 
• Chapter No. 3 - Tools of Financial Statement Analysis - Comparative Statements and Common- Size Statements
• Chapter No. 4 - Accounting Ratios
• Chapter No. 5 - Cash Flow Statement

Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication