Question

From the following calculate
(a) Debt Equity Ratio
(b) Total Assets To Debt Ratio
(c) Propietory Ratio

$$\begin{array}{cc}\text{Items}& \text{Amt. (Rs.)}\\ \text{Equity Share Capital}& 75,000\\ \text{Preference Share Capital}& 25,000\\ \text{General Reserve}& 50,000\\ \text{Accumulated Profits}& 30,000\\ \text{Debentures}& 75,000\\ \text{Sundry Creditors}& 40,000\\ \text{Outstanding Expenses}& 10,000\\ \text{Preliminary Expenses to be written off}& 5,000\end{array}$$

Answer 1

(a) Debt Equity Ratio
$=\frac{Debt}{Equity}$

Equity / Shareholders Fund
= Equity Share Capital + Preference Share Capital + General Reserve + Accumulated Profits – Preliminary Expenses Written off
= Rs. 75,000 + Rs. 25,000 + Rs. 50,000 + Rs. 30,000 – Rs. 5,000
= Rs. 1,75,000

Debt = Debenture = Rs. 75,000

Debt Equity Ratio $=\frac{Rs.75,000}{Rs.1,75,000}=\frac{3}{7}=3:7or0.43:1$

(b) Total Assets to Debt Ratio
$=\frac{TotalAssets}{Debt}$

Total Assets = Total Libilities

Total Liabilities
= Equity Share Capital + Preference Share Capital + General Reserve + Accumulated Profits + Debentures + Sundry Creditors + Outstanding Expenses – Preliminary Expenses to be written off
= Rs. 75,000 + Rs. 25,000 + Rs. 50,000 + Rs. 30,000 + Rs. 75,000 + Rs. 40,000 + Rs. 10,000 – Rs. 5,000
= Rs. 3,00,000

Total Assets to Debt Ratio $=\frac{Rs.3,00,000}{Rs.75,000}=4:1$

(c) Proprietory Ratio
$=\frac{\text{Shareholders' Fund}}{\text{Net Assets}}$

$=\frac{Rs.1,75,000}{Rs.3,00,000}=\frac{7}{12}=7:12$