Question

Calculate debt equity ratio, from the following information:
Total external liabilities = Rs. 5,00,000
Balance sheet total = Rs. 10,10,000
Current liabilities = Rs. 1,00,000
Fictitious assets = Rs. 10,000

• A. 5:4
• B. 6:5
• C. 5:6
• D. 4:5

Answer 1

The correct option is D 4:5

Long-term debt = Total external liabilities - Current liabilities

= Rs. 5,00,000 - Rs. 1,00,000

= Rs. 4,00,000

Total non-fictitious assets = Total Assets - Fictitious assets

= Rs. 10,10,000 - Rs. 10,000

= Rs. 10,00,000

Shareholders funds = Non-fictitious total assets - Total liabilities

= Rs. 10,00,000 - Rs. 5,00,000

= Rs. 5,00,000

Debt equity ratio = Rs. 4,00,000/Rs. 5,00,000

= 4:5