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Question : The debt-to-equity ratio of a company is 1: 2. State whether the 'Issue of bonus shares' will increase, decrease or not change the Debt to Equity Ratio.

Option 1: Increase

Option 2: Decrease

Option 3: No change

Option 4: can't say


Team Careers360 14th Jan, 2024
Answer (1)
Team Careers360 25th Jan, 2024

Correct Answer: No change


Solution : Answer = No change

Neither the Total long-term debt nor the shareholder fund is affected. Since it is a Conversion of Accumulated Profit into share capital. The issuance of bonus shares will not change the Debt to Equity Ratio. Bonus shares are distributed from the company's reserves, not affecting its debt or equity. Therefore, the ratio remains unchanged, as neither the debt nor the equity is altered.
Hence, the correct option is 3.

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