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Question 36 Chapter 4 of +2-B – T.S. Grewal 12 Class

Question 36 Chapter 4 of +2-B
Question No. 36- Chapter No.4 - T.S. Grewal +2 Book Part B

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Question 36 Chapter 4 of +2-B

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Debt to Equity Ratio
36. When Debt to Equity Ratio is 2, State giving a reason, whether this ratio will
increase or decrease or will have no change in each of the following cases:
(i)Sales of Land (Book value Rs. 4,00,000) for Rs. 5,00,000; (ii) Issue of Equity Shares for the purchase of Plant and Machinery worth Rs. 10,00,000; (iii) Issue of preference Share for the redemption of 13% Debentures, worth Rs. 10,00,000.

The solution of Question 36 Chapter 4 of +2-B: –

 
Transactions
Impact on Current RatioReason
Sales of Land (Book value Rs. 4,00,000)
for Rs. 5,00,000
DecreaseSale of Land at a profit of Rs. 1,00,000 will increase Shareholder’s
Funds. Hence, Debt to Equity Ratio will decrease.
(ii) Issue of Equity Shares for the purchase
of Plant and Machinery worth Rs. 10,00,000
DecreaseIssue of Equity Shares for the purchase of Plant and machinery will increase Shareholders’ Funds, hence the ratio will decrease.
(iii) Issue of Preference Share for the redemption of 13% Debentures, worth Rs. 10,00,000.DecreaseTotal Long-term Debts are not affected (because debentures
redeemed are Current Liabilities) but total Shareholders’ Funds are
increased by the amount of Rs. 10,00,000, hence the ratio will
decrease
   



 

 

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Balance Sheet: Meaning, Format & Examples

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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)

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

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

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

Question 1 Chapter 1 of +2-B
T.S. Grewal’s Analysis of Financial Statements

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