why outstanding expenses not included in debt to equity ratio?

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Solution

Mohd Faaiz, as we know, debts are long-term borrowings (Long-Term Liability) of the company and equity is owner's capital. Debt-Equity Ratio represents the relationship between borrowed fund and owner's capital of the company. It depicts the long-term financial position of the company.
However, Outstanding expenses are part of the current liability of the company, which must be paid within the 1 year.
Therefore, these are not considered for calculating Debt-Equity Ratio.

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Similar questions

From the following, calculate (a) Debt Equity Ratio (b) Total Assets to Debt Ratio (c) Proprietary Ratio.

	Rs
Equity Share Capital	75,000
Preference Share Capital	25,000
General Reserve	45,000
Accumulated Profits	30,000
Debentures	75,000
Sundry Creditors	40,000
Outstanding Expenses	10,000

Q. Debt to Equity ratio is the ratio of debt to equity or shareholders’ funds

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

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

Q. Total Assets ₹12,50,000; Total Debts ₹10,00,000; Current Liabilities ₹5,00,000.
Calculate Debt to Equity Ratio.

Higher debt equity ratio (Debt/Equity) results in Equity

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