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4.10 Management Accounting (Section B)—ISC XII

Illustration 5.
From the following Balance Sheet of Defence Brokers Ltd., calculate Debt to Equity Ratio:

BALANCE SHEET as at 31st March, 2019
Particulars Note No. `
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 15,00,000
(b) Reserves and Surplus (2,30,000)
2. Non-Current Liabilities
(a) Long-term Borrowings 15,00,000
(b) Long-term Provisions 2,85,000
3. Current Liabilities
(a) Short-term Borrowings 55,000
(b) Trade Payables 1,15,000
(c) Other Current Liabilities 25,000
Total 32,50,000
II. ASSETS
1. Non-Current Assets
(a) Fixed Assets:
(i) Tangible Assets 11,00,000
(ii) Intangible Assets 1,30,000
(b) Non-Current Investments 1 2,60,000
2. Current Assets
(a) Current Investments 2 1,90,000
(b) Inventories 7,50,000
(c) Trade Receivables 3,00,000
(d) Cash and Bank Balances 5,20,000
Total 32,50,000
Notes to Accounts
Particulars `

1. Non-Current Investments
Trade Investments 2,60,000
2. Current Investments
Government Securities 50,000
Other Investments (Trade) 1,40,000
1,90,000

Debt/Long-term Debt
Solution: Debt to Equity Ratio =
Equity/Shareholders’ Funds

` 17,85,000
= = 1.4 :1.
` 12,70,000
Notes:
1. Long-term Debt = Long-term Borrowings + Long-term Provisions
= ` 15,00,000 + ` 2,85,000 = ` 17,85,000.
2. Equity or Shareholders’ Funds = Share Capital + Reserves and Surplus
= ` 15,00,000 – ` 2,30,000* = ` 12,70,000.
* ` 2,30,000, being negative amount against Reserves and Surplus, it is deducted.