Fixed Assets ₹5,00,000; Current Assets ₹3,00,000; Equity Share Capital ₹4,00,000; Reserve ₹2,00,000; Long-term Debts ₹40,000. Proprietary Ratio will be :

93.75%

The correct answer is option 3- 93.75%.

Shareholders funds = Equity Share Capital + Reserve
                               = 4,00,000 + 2,00,000
                               = 6,00,000

Capital employed is equal to the long-term debt + shareholders’ funds. Alternatively, it may be taken as net assets which are equal to the total assets – current liabilities.

Total assets = Fixed Assets + Current Assets
                    = 5,00,000 + 3,00,000
                   = ₹8,00,000
Current Liabilities = Total Assets - (Equity Share Capital + Reserve + Long-term Debts)
                            = 8,00,000 - (4,00,000 + 2,00,000 + 40,000)
                           = 8,00,000 - (6,40,000)
                           = ₹1,60,000

Capital employed (Net assets) = Total assets – current liabilities
                                                = 8,00,000 - 1,60,000
                                                = 6,40,000
                 or
Capital employed = Equity Share Capital + Reserve + Long-term Debts
                            = 4,00,000 + 2,00,000 + 40,000
                            = 6,40,000

Proprietary Ratio = Shareholders’, Funds/Capital employed
Proprietary Ratio = 6,00,000/6,40,000 X 100
                           = 93.75 %

** This ratio can also be computed in relation to total assets instead of net assets (capital employed).
If we use total assets then proprietary ratio will be- (Shareholders funds/ Total assets) X 100
                                                                                = (600000/800000) X 100
                                                                                = 75%
As the 75% is not given in the option, then it was calculated through net assets or capital employed.