Solution for Q 41 to 50 of Chapter 4 of Book 3 - Analysis of Financial Statements of T S Grewal Class 12 Accountancy 2026-27 are given below. The Chapter name is Ratio Analysis class 12. These Solutions are based on topics solvency ratios which includes debt to equity ratio
Working notes are given with each solution. These help in understanding the steps and are also important for board exams as marks are given for steps.Debt equity ratio is a key ratio is finfing the long term solvency of any business and is critical business health parameter. A higher debt equity ratio is generally considered unhealthy for business as it indicates higher dependency on external funds and future solvency problems may arise.
These solutions are also useful for CA Foundation, CS Foundation and CMA Foundation students. The solutions will be helpful for students as well as teachers teaching class 12 accounts.
Question 41
| Total |
= |
Total |
|
|
|
| Liabilities |
Assets |
|
|
|
| |
= |
1400000 |
|
|
|
| |
|
|
|
|
|
| Shareholders |
= |
Total |
- |
Total |
|
| Funds |
|
Liabilities |
Debts |
|
| |
|
|
|
|
|
| |
= |
1400000 |
- |
1200000 |
|
| |
= |
200000 |
|
|
|
| |
|
|
|
|
|
| Long Term |
= |
Capital |
- |
Shareholders |
| Debts |
|
Employed |
|
Funds |
|
| |
|
|
|
|
|
| |
= |
1000000 |
- |
200000 |
|
| |
= |
800000 |
|
|
|
| |
|
|
|
|
|
| Debt to |
= |
Debt |
|
/ |
Equity |
| Equity Ratio |
800000 |
|
/ |
200000 |
| |
|
|
|
|
|
| |
= |
4:1 |
|
|
|
▶ Video Solution: Coming Soon
Question 42
| Long Term |
= |
Capital |
- |
Shareholders |
| Debts |
|
Employed |
|
Funds |
|
| |
|
|
|
|
|
| |
= |
800000 |
- |
200000 |
|
| |
= |
600000 |
|
|
|
| |
|
|
|
|
|
| Debt to |
= |
Debt |
|
/ |
Equity |
| Equity Ratio |
600000 |
|
/ |
200000 |
| |
= |
3:1 |
|
|
|
▶ Video Solution: Coming Soon
Question 43
| Current Ratio |
= |
2.5:1 |
|
|
|
| |
|
|
|
|
|
| 2.5 |
= |
CA |
/ |
CL |
|
| |
|
|
|
|
|
| Current Assets |
= |
2.5 CL |
|
|
|
| |
|
|
|
|
|
| Now |
|
|
|
|
|
| Working Capital |
= |
Current Assets |
- |
Current Liabilities |
| |
|
|
|
|
|
| 120000 |
= |
2.5CL |
|
- |
CL |
| |
|
|
|
|
|
| CL |
= |
120000 |
/ |
1.5 |
|
| |
= |
80000 |
|
|
|
| |
|
|
|
|
|
| Current Assets |
= |
2.5 * 80000 |
|
|
| |
= |
200000 |
|
|
|
| |
|
|
|
|
|
| Long term Debt |
= |
Total Debt |
- |
Current Liabilities |
| |
|
|
|
|
|
| |
= |
280000 |
|
- |
80000 |
| |
= |
200000 |
|
|
|
| |
|
|
|
|
|
| Total Liabilities |
= |
Total Assets |
|
|
| |
= |
380000 |
|
|
|
| |
|
|
|
|
|
| Shareholders |
= |
Total |
|
- |
Total |
| Funds |
|
Liabilities |
|
Debt |
| |
|
|
|
|
|
| |
= |
380000 |
|
- |
280000 |
| |
= |
100000 |
|
|
|
| |
|
|
|
|
|
| Debt to |
= |
Debt |
|
/ |
Equity |
| Equity Ratio |
200000 |
|
/ |
100000 |
| |
|
|
|
|
|
| |
= |
2:1 |
|
|
|
▶ Video Solution: Coming Soon
Question 44
| Quick Ratio |
= |
1.5:1 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Quick Assets |
= |
1.5 CL |
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Now |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Working Capital |
= |
Quick Assets |
+ |
Inventory |
- |
Current Liabilities |
| |
|
|
|
|
|
|
|
| 120000 |
= |
1.5CL |
|
+ |
80000 |
- |
CL |
| |
|
|
|
|
|
|
|
| 0.5CL |
= |
120000 |
|
- |
80000 |
|
|
| 0.5CL |
= |
40000 |
|
|
|
|
|
| CL |
= |
80000 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Now |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Long Term |
= |
Total |
- |
Current |
|
|
|
| Debts |
|
Debts |
|
Liabilities |
|
|
| |
|
|
|
|
|
|
|
| |
= |
280000 |
- |
80000 |
|
|
|
| |
= |
200000 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Now |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Total Liabilities |
= |
Total Assets |
|
|
|
|
| |
= |
380000 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Shareholders |
= |
Total |
|
- |
Total |
|
|
| Funds |
|
Liabilities |
|
Debt |
|
|
| |
|
|
|
|
|
|
|
| |
= |
380000 |
|
- |
280000 |
|
|
| |
= |
100000 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Debt to |
= |
Debt |
|
/ |
Equity |
|
|
| Equity Ratio |
200000 |
|
/ |
100000 |
|
|
| |
= |
2:1 |
|
|
|
|
|
▶ Video Solution: Coming Soon
Question 45
| |
Debt to Equity Ratio |
2:1 |
|
| |
|
|
|
| |
We assume the ratio to be 10:5 |
1:1 |
| |
Each transaction will be assumed to be of Rs 1 |
| |
|
|
|
| (a) |
Journal Entry |
|
| |
|
|
|
| |
Bank A/c Dr.. |
|
|
500000 |
|
CA |
|
|
|
|
| |
To Land |
400000 |
NCA |
|
|
|
|
| |
To Profit and Loss A/c |
|
|
|
100000 |
Equity |
Increase |
|
|
|
| |
Debt Equity Ratio |
10 : 6 |
= |
1.67:1 |
| |
Debt to Equity Ratio |
Decrease |
|
|
| |
|
|
|
|
| (b) |
Journal Entry |
|
|
| |
|
|
|
|
| |
Plant & Machinery A/c Dr.. |
|
|
|
|
|
|
|
|
|
| |
To Equity Share Capital A/c |
|
|
|
Equity |
Increase |
|
|
|
|
| |
Debt Equity Ratio |
10 : 6 |
= |
1.67:1 |
| |
Debt to Equity Ratio |
Decrease |
|
|
| |
|
|
|
|
| (c) |
Journal Entry |
|
|
| |
|
|
|
|
| |
13% Debentures A/c Dr.. |
|
|
|
CL |
|
|
|
|
|
| |
To Preference Share Capital A/c |
|
|
|
Equity |
Increase |
|
|
|
|
| Debt Equity Ratio |
10 : 6 |
= |
1.67:1 |
| Debt to Equity Ratio |
Decrease |
|
|
| |
|
|
|
| |
Note : |
Since the debentures were redeemable in the current year so these were part of current liabilities |
|
|
|
|
|
|
|
|
▶ Video Solution: Coming Soon
Question 46
| |
Debt to Equity Ratio |
0.5:1 |
| |
|
|
| |
We assume the ratio to be 5:10 |
| |
Each transaction will be assumed to be of Rs 1 |
| |
|
|
| (i) |
Journal Entry |
| |
|
|
| |
Bank A/c Dr.. |
|
|
CA |
|
|
|
|
|
| |
To Equity Share Capital A/c |
|
|
Equity |
Increase |
|
|
|
|
| |
Debt Equity Ratio |
5 : 11 |
= |
0.45:1 |
| |
Debt to Equity Ratio |
Decrease |
|
| |
|
|
|
|
| (ii) |
Journal Entry |
|
|
| |
|
|
|
|
| |
Cash A/c Dr.. |
|
|
CA |
|
|
|
|
|
| |
To Debtors A/c |
|
|
CA |
|
|
|
|
|
| |
Debt to Equity Ratio |
No Impact |
| |
|
|
| (iii) |
Journal Entry |
| |
|
|
| |
Debentures A/c Dr.. |
|
|
CL |
|
|
|
|
|
| |
To Bank A/c |
|
|
CA |
|
|
|
|
|
| Debt to Equity Ratio |
No Impact |
| |
|
| |
Note : Since the debentures were redeemable so these were part of current liabiities |
|
|
|
|
|
|
|
|
| |
Inventories A/c Dr.. |
|
|
CA |
|
|
|
|
|
| |
To Sundry Creditors A/c |
|
|
CL |
|
|
|
|
|
| Debt to Equity Ratio |
No Impact |
▶ Video Solution: Coming Soon
Question 47
| Step 1 |
| Equity information is not directly given in the question So prepare a Balance Sheet |
| Balance Sheet |
| Liabilities |
Amount |
Assets |
Amount |
| 10% Long Term Borrowings |
|
|
|
420000 |
Property, Plant & Equipment |
|
|
840000 |
|
|
| Long Term Provisions |
|
140000 |
Less - Depreciation |
140000 |
|
700000 |
| Current Liabilities |
|
280000 |
|
|
|
|
|
|
| Share Capital |
|
280000 |
Non Current Investments |
|
14000 |
| (Balancing Figure) |
|
|
Long Term Loans and Advances |
|
56000 |
| |
|
|
|
|
Current Assets |
|
350000 |
| |
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
|
1120000 |
Total |
|
|
|
|
1120000 |
| Step 2 |
|
|
|
|
|
| Debt |
= |
10% Long Term Borrowings |
+ |
Long Term Provisions |
| |
|
420000 |
|
+ |
140000 |
| |
= |
560000 |
|
|
|
| |
|
|
|
|
|
| Step 3 |
|
|
|
|
|
| Equity |
= |
280000 |
(1120000 - 560000 - 280000) |
| |
|
|
|
|
|
| Step 4 |
|
|
|
|
|
| Debt to |
= |
Debt |
/ |
Equity |
|
| Equity Ratio |
560000 |
/ |
280000 |
|
| |
= |
2:1 |
|
|
|
▶ Video Solution: Coming Soon
Question 48
| |
Debt to Equity Ratio |
2:1 |
| |
|
|
| |
We assume the ratio to be 10:5 |
| |
Each transaction will be assumed to be of Rs 1 |
| |
|
|
| (i) |
Journal Entry |
| |
|
|
| |
Bank A/c Dr.. |
CA |
|
|
|
|
|
|
| |
To Equity Share Capital A/c |
Equity |
Increase |
|
|
|
|
|
| |
Debt Equity Ratio |
10 : 6 |
= |
1.67:1 |
| |
Debt to Equity Ratio |
Decrease |
|
|
| |
|
|
|
|
| (ii) |
Journal Entry |
|
|
| |
|
|
|
|
| |
Debentures A/c Dr.. |
CL |
|
|
|
|
|
|
| |
To Equity Share Capital A/c |
Equity |
Increase |
|
|
|
|
|
| Debt Equity Ratio |
10 : 6 |
= |
1.67:1 |
| Debt to Equity Ratio |
Decrease |
|
|
| |
|
|
|
| |
Note : |
Since the debentures were redeemable in the current year so these were part of current liabilities |
|
|
|
|
|
|
|
|
| |
Bank A/c Dr.. |
CA |
|
|
|
|
|
|
| |
To Fixed Asset |
PPE |
|
|
|
|
|
|
| |
To Profit and Loss A/c |
Equity |
Increase |
reserves and surplus or shareholder funds |
|
|
|
|
| |
Debt Equity Ratio |
10 : 6 |
= |
1.67:1 |
| |
Debt to Equity Ratio |
Decrease |
|
|
| |
|
|
|
|
| (iv) |
Journal Entry |
|
|
| |
|
|
|
|
| |
Fixed Asset A/c Dr.. |
PPE |
|
|
|
|
|
|
| |
To Long Term Loan |
Debt |
Increase |
|
|
|
|
|
| |
Debt Equity Ratio |
11 : 5 |
= |
2.2:1 |
| |
Debt to Equity Ratio |
Increase |
|
|
| |
|
|
|
|
| (v) |
Journal Entry |
|
|
| |
|
|
|
|
| |
Creditors A/c Dr.. |
CL |
|
|
|
|
|
|
| |
To Bank |
CA |
|
|
|
|
|
|
| Debt to Equity Ratio |
No Impact |
▶ Video Solution: Coming Soon
Question 49
| Shareholder |
= |
Preference |
+ |
Equity |
+ |
Reserves |
| Funds |
|
Shares |
|
Shares |
|
Surplus |
| |
|
|
|
|
|
|
| |
= |
500000 |
+ |
1500000 |
+ |
400000 |
| |
= |
2400000 |
|
|
|
|
| |
|
|
|
|
|
|
| Debt |
= |
Long term loans |
|
|
|
| |
= |
3000000 |
|
|
|
|
| |
|
|
|
|
|
|
| Debt to |
= |
Debt |
|
/ |
Equity |
|
| Equity Ratio |
3000000 |
|
/ |
2400000 |
|
| |
= |
1.25:1 |
|
|
|
|
| |
|
|
|
|
|
|
| Current Ratio |
= |
Current Assets |
/ |
Current Liabilities |
| |
|
1200000 |
|
/ |
800000 |
|
| |
|
|
|
|
|
|
| |
= |
1.5:1 |
|
|
|
|
▶ Video Solution: Coming Soon
Question 50
| Step 1 |
|
|
|
|
| Debt |
= |
Non Current Liabilities |
| |
|
250000 |
|
|
| |
|
|
|
|
| Equity |
= |
Share Capital |
+ |
Reserves and Surplus |
| |
|
1000000 |
+ |
240000 |
| |
|
|
|
|
| |
= |
1240000 |
|
|
| |
|
|
|
|
| Step 2 |
|
|
|
|
| Debt to |
= |
Debt |
/ |
Equity |
| Equity Ratio |
250000 |
/ |
1240000 |
| |
|
|
|
|
| |
= |
0.2:1 |
|
|
▶ Video Solution: Coming Soon
