Explanation:

From the following information, compute Debt-Equity Ratio:

Long Term Borrowings - 2,00,000

Long Term Provisions - 1,00,000

Current Liabilities - 50,000

Non-current-Assets - 3,60,000

Current-Assets - 90,000

(b) The current ratio of X. Ltd is 2 : 1. STATE with reason which of the following transaction would (i) increase; (ii) DECREASE or (iii) not change the ratio.

(1) Included in the TRADE payables was a bills payable of Rs 9,000 which was met on maturity.

(2) COMPANY issued 1,00,000 equity shares of Rs 10 each to the Vendors of machinery purchased.

December 26, 2019avatar

Aiswaryaa Kamlesh

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ANSWER

Debt- Equity Ratio =

Shareholder

′

sFunds

Long−TermDebt

Total Assets = Total Liabilities + Shareholder's Funds

Total Assets = Current Assets + Non-Current Assets

= 1,80,000 + 7,20,000 = 9,00,000

Total Liabilities = Long Term Borrowings + Long-Term Provisions + Current Liabilities

= 4,00,000 +2,00,000+1,00,000 = 7,00,000

Therefore, Shareholder's funds = Total Assets Total Liabilities

= 9,00,000 7,00,000 = 2,00,000 Long-Term Debt = Long Term Borrowings + Long-term Provisions = 4,00,000+2,00,000 = Rs 6,00,000

Therefore, Debt -equity ratio =

2,00,000

6,00,000

=3:1

(b) Current ratio =

CurrentLiabilities

CurrentAssets

(1) A bill payable of Rs. 9,000 was met on maturity will affect:

1.Trade Payable will reduce by Rs.9,000

2.Cash will reduce by Rs.9,000

Simultaneous decreases in current assets and current liabilities will improve current ratio

Issue of share of Rs.10,00,000 to vendor of machinery will affect the following

1.Increases on the balance of machinery

2.Increase in the amount of share capital

This transaction will NEITHER affect current liabilities nor current assets.Thus ,current ratio will remain unchanged.