IGNOU MCO 5 2026 - From the following particulars compute leverage ratios:

Question

From the following particulars compute leverage ratios:

Liabilities	Rs.	Assets	Rs.
Equity Share Capital	40,000	Land	22,000
8% Preference Share Capital	20,000	Building	24,000
Reserves	10,000	Plant and Machinery	38,000
Profit and Loss Account	5,000	Furniture	5,000
10% Debentures	45,000	Sundry Debtors	22,000
Trade Creditors	9,000	Stock	13,000
Outstanding Expenses	2,000	Cash	14,000
Provision for Taxation	3,000	Prepaid expenses	2,000
Proposed Dividend	6,000
---	---	---	---
Total	1,40,000	Total	1,40,000

16 Feb 2026

Answer :

Word Count : 248

For computing leverage ratios, the main focus is on the relationship between fixed financial charges and the capital structure of the firm. First, the Debt–Equity Ratio is calculated by dividing long-term debt by shareholders’ funds. Long-term debt consists of 10% Debentures amounting to Rs. 45,000. Shareholders’ funds include Equity Share Capital (Rs. 40,000), Preference Share Capital (Rs. 20,000), Reserves (Rs. 10,000), and Profit and Loss Account (Rs. 5,000). Thus, total shareholders’ funds equal Rs. 75,000. Debt–Equity Ratio = 45,000 / 75,000 =

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