What will be the effect on the proprietary ratio of the transaction 'purchase of a fixed asset for cash'?

No change

The correct answer is option 3- No change.

Proprietary Ratio = Shareholders Funds/Capital employed (or net assets)

This ratio can also be computed in relation to total assets instead of net assets (capital employed).

Purchasing a fixed asset for cash-

 * Shareholders' Funds (Equity): This transaction involves the use of cash to acquire an asset. It does not impact the shareholders' funds. There's no change in capital, reserves.

 * Total Assets/Net Assets- Cash, which is a current asset, decreases because it's used for the purchase of fixed asset. A fixed asset increases by the same amount. Since one asset (cash) decreases and another (fixed asset) increases by the same value, the total assets or net assets remain unchanged.

Neither the shareholder's funds nor the total assets are affected since 'purchase of a fixed asset for cash' is a conversion of one asset i.e cash into another asset i.e fixed asset. Therefore, the correct answer is No change.