Read the following information and answer the question.
| PARTICULARS | AMOUNT (₹) |
| Share capital | 30,00,000 |
| Securities premium reserve | 2,00,000 |
| Reserves and surplus | 10,00,000 |
| Loan from IFCI @10% | 20,00,000 |
| 5% Bonds | 25,00,000 |
| Long term provision | 3,00,000 |
| Short term provision | 1,00,000 |
| Short term borrowings | 4,00,000 |
| Trade payables | 5,00,000 |
Calculate Debt-equity ratio.
Answer & explanation
Correct answer: option 3
The correct answer is option 3- 1.2:1.
Shareholder's funds = Share capital + reserves and surplus
= 30,00,000 + 10,00,000
= ₹40,00,000
*Securities reserve is not included in reserves and surplus because it is already included in reserves.
Long-term debts = loan + bonds + long-term provision
= 20,00,000 + 25,00,000 + 3,00,000
= ₹48,00,000
Debt-equity ratio = Debt/Equity
= 48,00,000/40,00,000
= 1.2:1