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Question : The Debt-Equity Ratio of a Company is 1: 2. Goods purchased on Credit would

Option 1: Increase debt to equity ratio

Option 2: Decrease debt to equity ratio

Option 3: No change

Option 4: Increase current ratio


Team Careers360 6th Jan, 2024
Answer (1)
Team Careers360 10th Jan, 2024

Correct Answer: No change


Solution : Answer = No change.

No effect on long-term loan and equity.
When we purchase goods on credit will increase the firm current assets and current liabilities. Purchasing goods on credit increases current assets (inventory) and current liabilities (accounts payable), maintaining the same debt-equity ratio. It doesn't impact long-term loans or equity, as it involves only short-term financing through trade credit.
Hence, the correct option is 3.

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