Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Accounting Ratios

Question:

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.