Question 34 Chapter 4 of +2-B - USHA Publication 12 Class

Question 34 Chapter 4 of +2-B

34. (Debt Equity Ratio/Proprietary Ratio/Total Asset to Debt Ratio) From the following information calculate (i) Debt Equity Ratio, (ii) Proprietary Ratio, (iii) Total Asset to Debt Ratio.

Particulars	₹
I. Equity and Liabilities
Shareholders’ Funds
Equity Share capital	3,75,000
Reserve and Surplus
General Reserve	1,50,000
Non Current Liabilities
Long term Borrowings
12% Debentures	1,25,000
Current Liabilities
Short term Borrowings
Bank overdraft	50,000
Trade Payable	3,00,000
	10,00,000
II. Assets
Non Current Assets
Fixed Assets	4,12,000
Long-term Investments	40,000
Current Assets
Inventory	2,27,000
Trade Receivable	3,10,000
Cash in hand	10,000
	10,00,000

The solution of Question 34 Chapter 4 of +2-B: –

(i) Debt Equity Ratio	=	Total Long term Debt
		Shareholder’s Fund

Total Long term Debt	=	12% Debentures
	=	₹ 1,25,000
Shareholder’s Fund	=	Equity share Capital + General Reserve
	=	₹ 3,75,000 + ₹ 1,50,000
	=	₹ 5,25,000

Debt Equity Ratio	=	₹ 1,25,000
Debt Equity Ratio	=	₹ 5,25,000

	=	0.238: 1

(ii) Proprietary Ratio	=	Proprietor’s Funds
		Total Assets

Proprietor’s Funds	=	Equity share Capital + General Reserve
	=	₹ 3,75,000 + ₹ 1,50,000
	=	₹ 5,25,000
Total Assets	=	Fixed Assets + Long Term Investments + Inventory + Trade Receivable +Cash at Bank
	=	₹ 4,12,500 + ₹ 40,000 + ₹ 2,27,500 + ₹ 3,10,000 + ₹ 10,000
	=	₹ 10,00,000

Debt Equity Ratio	=	₹ 5,25,000
Debt Equity Ratio	=	₹ 10,00,000

	=	0.525: 1

(iii) Total Assets to Debt Ratio	=	Total Assets
		Long term Debt

Total Assets	=	Fixed Assets + Long Term Investments + Inventory + Trade Receivable +Cash at Bank
	=	₹ 4,12,500 + ₹ 40,000 + ₹ 2,27,500 + ₹ 3,10,000 + ₹ 10,000
	=	₹ 10,00,000
Long term Debt	=	12% Debentures
	=	₹ 1,25,000

(iii) Total Assets to Debt Ratio	=	₹ 10,00,000
(iii) Total Assets to Debt Ratio	=	₹ 1,25,000

	=	8: 1

End of Solution

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