Question:
The Debt-Equity Ratio of a company is \( 3 : 2 \). Which of the following transactions will result in an increase in this ratio?
The Debt-Equity Ratio of a company is \( 3 : 2 \). Which of the following transactions will result in an increase in this ratio?
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Issuing debentures increases debt in the company, thus raising the debt-equity ratio.
Updated On: Jan 25, 2025
- Purchase of goods on credit
- Issue of Debentures
- Issue of Equity Shares
- Cash received from Debtors
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The Correct Option is B
Solution and Explanation
The Debt-Equity Ratio is calculated by dividing total debt by total equity. Issuing debentures increases the debt portion while keeping equity unchanged, thereby increasing the ratio. Other options do not affect the debt-equity balance in a way that increases the ratio.
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