Read the following information about Balance Sheet of XYZ Ltd. (As of 31st March 2020) and answer the question.
EQUITY AND LIABILITIES (Amount in ₹)
1. Shareholder's Funds
- a. Share Capital 40,000
- b. Reserves and Surplus 10,000
2. Non-Current Liabilities
- a. Long term Loan (Debentures) 1,00,000
3. Current Liabilities
- a. Short term Borrowings 25,000
- b. Trade Payables 30,000
TOTAL 2,05,000
ASSETS
1. NON CURRENT ASSETS
- Fixed Assets 95,000
2. CURRENT ASSETS
- a. Inventories 25,000
- b. Trade Receivables 45,000
- c. Cash & Cash Equivalents 10,000
- d. Prepaid Expenses 30,000
TOTAL 2,05,000
From the above Balance Sheet calculate Debt to Equity Ratio?
Answer & explanation
Correct answer: option 1
The correct answer is option 1- 2:1.
* Debt = Long term Loan (Debentures)
= ₹1,00,000
* Equity = Shareholder's funds
= Share Capital + Reserves and Surplus
= 40,000 + 10,000
= ₹50,000
Debt to Equity Ratio = Long term Debt/ Equity Fund
= 1,00,000 / 50,000
= 2 :1