Q. 45 DK Goel Accounting Ratios Solutions Class 12 CBSE (2024-25)
the solutions of Question number 45 of Accounting Ratios chapter 5 of DK Goel Class 12 CBSE (2024-25)
The following particulars are given to you:
| ₹ | |
| Share Capital | 1,00,000 |
| Reserve and Surplus | 1,50,000 |
| Current Liabilities | 4,00,000 |
| Current Assets | 5.50,000 |
| Property, Plant and Equipment | 7,00,000 |
| Loans @ 10% | 4,00,000 |
| 12% Debentures | 2,00,000 |
Net Profit for the year after interest and tax was ₹ 96,000. Rate of Income Tax was 50%.
Calculate (i) Debt Equity Ratio; (ii) Proprietary Ratio; and (iii) Interest Coverage Ratio.
Also give your Comments.
[Ans. (i) Debt-Equity Ratio 2.4 : 1; (ii) Proprietary Ratio 20%; (iii) Interest coverage Ratio = 4 times.
Solution:-
Comments:
(i) Debt-Equity Ratio of the company is not satisfactory because it is more than the acceptable norms of 2 : 1. It shows risky financial positions from the long-term point of view.
(ii) Proprietary Ratio is only 20% which means that the long-term financial position of the Company is not satisfactory because only 20% of the total assets of the company are funded by equity.
(iii) Normally acceptable interest-coverage ratio is 6 or 7 times, whereas the actual ratio for this company is 4. It means that the company may face difficulty in paying the interest on long-term loans regularly in case of fall of profits.
