Question 134 Chapter 4 of +2-B - T.S. Grewal 12 Class

Question 134 Chapter 4 of +2-B

Table of Contents

The solution of Question 134 Chapter 4 of +2-B: –

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

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

Return on Capital Employed (or Return on Investment) Ratio

134. State with reason whether the following transactions will increase,
decrease or not change the ‘Return on Investment’ Ratio:
(i) Purchase of machinery worth 10,00,000 by issue of equity shares.
(ii) Charging depreciation of 25,000 on machinery.
(iii) Redemption of debentures by cheque 2,00,000.
(iv) Conversion of 9% Debentures of 1,00,000 into equity shares.

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The solution of Question 134 Chapter 4 of +2-B: –

Transactions	Impact on Return on Investment Ratio	Reason

(i) Purchase of machinery worth 10,00,000 by issue of equity shares.	Decrease	The amount of Capital Employed is increase and no change in Net Profit.

(ii) Charging depreciation of 25,000 on machinery.	Decrease	There will be decrease in both Capital Employed and Net Profit.

(iii) Redemption of debentures by cheque 2,00,000.	Increase	There will be decrease in Capital Employed and Net Profit is Not Changed.

(iv) Conversion of 9% Debentures of 1,00,000 into equity shares.	No Change	The amount of Share Capital is Increase equally to Decrease in Debentures So There is no Change in the Amounts.