From the following information calculate capital gearing ratio :
Balance sheet (Extract) as on 31.03.2018
| Particulars | Amount (₹) |
|---|---|
| I. EQUITY AND LIABILITIES | |
| 1. Shareholders' funds | |
| (a) Share capital | |
| Equity share capital | 4,00,000 |
| 5% Preference share capital | 1,00,000 |
| (b) Reserves and Surplus | |
| General Reserve | 2,50,000 |
| Surplus | 1,50,000 |
| 2. Non-current Liabilities | |
| Long-term borrowings (6% Debentures) | 3,00,000 |
| 3. Current Liabilities | |
| Trade Payables | 1,20,000 |
| Provision for tax | 30,000 |
| Total | 13,50,000 |
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Start your 14-day free trial to unlock the full solution →Capital gearing = (Pref. capital + Debentures) ÷ Equity shareholders' funds = 4,00,000 ÷ 8,00,000 = 0.5 : 1 (low geared).
Concept (TN HSC Class-12 Accountancy — Ratio Analysis): The capital gearing ratio shows the proportion of fixed-cost-bearing funds (preference share capital and debentures/long-term borrowings) to equity shareholders' funds. A firm is high geared if fixed-cost funds exceed equity funds, and low geared otherwise.
Step 1 — Fixed interest/dividend bearing funds:
| Item | ₹ |
|---|---|
| 5% Preference share capital | 1,00,000 |
| 6% Debentures (long-term borrowings) | 3,00,000 |
| Total | 4,00,000 |
Step 2 — Equity shareholders' funds:
| Item | ₹ |
|---|---|
| Equity share capital | 4,00,000 |
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