Question

Using the following balance sheet calculate debt equity ratio.

$$\begin{array}{cccc}\text{Capital and Liabilities}& \text{Amt. (Rs.)}& \text{Assets}& \text{Amt. (Rs.)}\\ \text{General Reserve}& 80,000& \text{Preliminary Expensses}& 20,000\\ \text{Profit and Loss}& 1,20,000& \text{Cash}& 1,00,000\\ \text{Loan}@15\%& 2,40,000& \text{Stock}& 80,000\\ \text{Bills Payable}& 20,000& \text{Bills Receivable}& 40,000\\ \text{Creditors}& 80,000& \text{Debtors}& 1,40,000\\ \text{Share Capital}& \underset{–}{2,00,000}& \text{Fixed Assets}& \underset{–}{3,60,000}\\ & \underset{–}{7,40,000}& & \underset{–}{7,40,000}\end{array}$$

Answer 1

Debt Equity Ratio
$=\frac{Debt}{Equity}$

Equity
= Share Capital + General Reserve + Profit and Loss – Preliminary Expenses
= Rs. 2,00,000 + Rs. 80,000 + Rs. 1,20,000 – Rs. 20,000
= Rs. 3,80,000

Debt = 15% Loan = Rs. 2,40,000

Debt Equity Ratio $=\frac{Rs.2,40,000}{Rs.3,80,000}=12:19$