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?

2:1

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