Question

The Debt-Equity Ratio of a company is \( 3 : 2 \). Which of the following transactions will result in an increase in this ratio?

• A. Purchase of goods on credit
• B. Issue of Debentures
• C. Issue of Equity Shares
• D. Cash received from Debtors

Hint:

Issuing debentures increases debt in the company, thus raising the debt-equity ratio.

Answer 1

The Correct Option is B

The Debt-Equity Ratio is determined by dividing total debt by total equity. The issuance of debentures augments the debt component without altering the equity, thus elevating the ratio. Alternative actions do not impact the debt-equity equilibrium in a manner that would escalate the ratio.