Identify the ideal debt-equity ratio.

CUET Preparation Today

Start Free Mocks

Home Questions PWTDQWH3W9

Target Exam

CUET

Subject

Accountancy

Chapter

Accounting Ratios

Question:

Based on following data related to Ambe limited, Jaipur, Answer question.

	₹
Revenue from operations	8,40,000
Cost of revenue from operations	4,20,000
Selling Expenses	80,000
Administrative Expenses	40,000
Equity share capital	1,00,000
8% preference share capital	50,000
10% debentures	1,00,000
Profit after Tax	1,74,000
Tax Rate	40%

Identify the ideal debt-equity ratio.

Options:

1 : 1

2 : 1

1 : 2

3 : 2

Correct Answer:

2 : 1

Explanation:

The correct answer is Option 2 - 2 : 1.

*The ideal debt -equity ratio is 2:1. Here the ratio is 2:3 which is not good for company.

Debt-Equity Ratio = Debts/Equity
= 100000/150000
= 2:3

Debt = 10% debentures i.e. 100000.

Equity = Equity share capital + 8% preference share capital
= 100000 + 50000
= 150000