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
Answer (1)
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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