Question : The Debt-Equity Ratio of a Company is 1:2. State the transaction by which it would increase to 3:1.
Option 1: Repayment of Long term Borrowings of Rs. 40,000 .
Option 2: Purchased a Fixed Asset for Rs.50,000 on long-term deferred payment basis.
Option 3: Issued new equity shares of Rs.75,000.
Option 4: Payment of Dividend Payable.
Correct Answer: Repayment of Long term Borrowings of Rs. 40,000 .
Solution : Answer = Repayment of Long-term Borrowings of Rs. 40,000 .
The debt to equity ratio is given as 1:2. It may Be assumed that debt is Rs 1,00,000 and Equity Rs 2,00,00. By Payment of Long-term Borrowings of Rs 40,000, long-term debt will be reduced by 40,000 and these will stand at Rs 60,000. Therefore, the Revised Ratio will be 3: 1.
Hence, the correct option is 1.
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