Aradya Ltd. had a debt equity ratio of 2.5: 1.
State which of the following transactions will not affect the Debt Equity Ratio?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → ₹2,00,000 paid to creditors
Debt-equity ratio compares long-term debt with shareholders’ funds (equity). A transaction changes it only if it changes one of these two. Paying creditors reduces a current liability and cash, both of which are outside the ratio.
Why the other options are incorrect
Option (1) Purchase of ₹15,00,000 machinery by taking a bank loan of ₹12,00,000 — Incorrect. The bank loan is long-term debt, so debt rises and the ratio rises.
Option (3) Conversion of ₹1,00,000 debentures into Equity shares of ₹100 each — Incorrect. Debt falls and equity rises by the same amount, so the ratio falls.
Option (4) Sale of furniture (book value of ₹5,00,000) for ₹5,50,000 — Incorrect. The profit of ₹50,000 adds to equity, so the ratio falls.
NCERT (2026-27 edition): NCERT (2026-27 edition):
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