Question 41:
Balance Sheet had the following amounts as at 31st March, 2021:
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` |
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` |
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10% Preference Share Capital |
5,00,000 |
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Current Assets |
12,00,000 |
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Equity Share Capital |
15,00,000 |
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Current Liabilities |
8,00,000 |
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Securities Premium Reserve |
1,00,000 |
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Investments (in other companies) |
2,00,000 |
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Reserves and Surplus |
4,00,000 |
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Fixed Assets-Cost |
60,00,000 |
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Long-term Loan from IDBI @ 9% |
30,00,000 |
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Depreciation Written off |
14,00,000 |
Calculate ratios indicating the Long-term and the Short-term financial position of the company.
Answer:
(i) Debt-Equity Ratio is an indicator of Long-term financial health. It
shows the proportion of Long-term loan in comparison of shareholders’ Funds.
Debt-Equity Ratio = Long Term Debts/Equity
Debt = Loan from IDBI @ 9% = 30,00,000
Equity = 10% Preference Share Capital + Equity Share Capital + Reserves & Surplus
= 5,00,000 + 15,00,000 + 4,00,000 = 24,00,000
Debt-Equity Ratio = 30,00,000/24,00,000 = 1.25:1
(ii) Current Ratio is an indicator of short-term financial portion. It shows
the proportion of Current Assets in comparison of Current Liabilities.
Current Ratio = Current Assets/Current Liabilities
Current Assets = 12,00,000
Current Liabilities = 8,00,000
Current Ratio = 12,00,000/8,00,000 = 1.5:1
Note: In the above question, Securities Premium Reserve is not considered while computing Equity because it is already included in the amount of Reserves and Surplus.
Question 42:
Calculate Debt to Equity Ratio from the following information:
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Fixed Assets (Gross) |
8,40,000 |
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Current Assets |
3,50,000 |
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Accumulated Depreciation |
1,40,000 |
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Current Liabilities |
2,80,000 |
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Non-current Investments |
14,000 |
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10% Long-term Borrowings |
4,20,000 |
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Long-term Loans and Advances |
56,000 |
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Long-term Provisions |
1,40,000 |
Answer:
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Debt |
= |
Long Term Borrowings+Long Term Provisions |
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= |
4,20,000+1,40,000 = ` 5,60,000 |
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Equity |
= |
Total Assets - Total Debts |
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= |
(8,40,000 -1,40,000+14,000+56,000+3,50,000) - (4,20,000 -1,40,000 -2,80,000)= ` 2,80,000 |
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Debt to Equity Ratio |
= |
Debt/Equity |
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= |
5,60,000/2,80,000=2:1 |
Question 43: From the following information, calculate Debt to Equity Ratio: Total Debts `6,00,000; Current Liabilities `2,00,000 and Capital Employed `6,00,000.
Answer:
Debt to Equity Ratio = Debt÷Equity Ratio
Debt to Equity Ratio = 4,00,000/2,00,000=2/1
Debt to Equity Ratio = 2:1
Working note:
Debt (Non- Current Liabilities)= Total Debt- Current Liabilities
4,00,000= 6,00,000 - 2,00,000
Equity= Capital Employed - Non- Current Liabilities
2,00,000= 6,00,000 - 4,00,000
Question 44: Calculate Debt to Equity Ratio: Total Assets `14,00,000, Total Debt `12,00,000; Capital Employed `10,00,000.
Answer:
Debt to Equity Ratio = Debt÷Equity Ratio
Debt to Equity Ratio = 8,00,000/2,00,000=4/1
Debt to Equity Ratio = 4:1
Working note:
Total Assets= Total Liabilities
14,00,000=14,00,000
Equity= Total Liabilities- Total Debt
2,00,000=14,00,000-12,00,000
Debt (Non- Current Liabilities)= Capital Employed- Equity
8,00,000=10,00,000-2,00,000
Question 45:
Capital Employed `8,00,000; Shareholders' Funds `2,00,000. Calculate Debt to Equity Ratio.
Answer:
Shareholders’ Funds = 2,00,000
Capital Employed = 8,00,000
Long- Term Debts = Capital Employed − Shareholders’ Funds
= 8,00,000 − 2,00,000 = 6,00,000
Debt equity ratio= Long-term Debt /equity=6,00,000/2,00,000=3:1