What will be the effect on the proprietary ratio of the transaction 'purchase of a fixed asset for cash'?
Options:
Increase
Reduce
No change
None of these
Correct Answer:
No change
Explanation:
Proprietary Ratio = Shareholders’, Funds/Capital employed (or net assets) Neither the shareholder's funds nor the total assets are affected since it is a conversion of one asset i.e cash into another asset i.e fixed asset.