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Debt-Equity

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Debt-Equity

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • August 5, 2021 at 10:48 am #630466
    Sourav9271
    Participant
    • Topics: 166
    • Replies: 118
    • ☆☆☆

    Sir,
    In Debt-Equity ratio.
    Should we consider Bank loan under debt?
    Or must bank loan be considered only
    In prior charge capital.?

    August 5, 2021 at 4:07 pm #630498
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51561
    • ☆☆☆☆☆

    Debt is all long term borrowings, including bank loans.

    Bank overdrafts are not included because they are short-term borrowings.

    August 7, 2021 at 1:35 am #630629
    Sourav9271
    Participant
    • Topics: 166
    • Replies: 118
    • ☆☆☆

    Okay sir..And what about equity?
    Will it include ordinary share+Retained
    +Reserves?

    Also should ordinary share be at par value
    Or current market value?

    August 7, 2021 at 10:11 am #630655
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51561
    • ☆☆☆☆☆

    As I explain in my free lectures, if you are asked to calculate the gearing based on the book values then the value of equity is the share capital plus the reserves (and retained earnings is one of the reserves).

    If you are asked to calculate the gearing based on market values (as is more sensible) then the value of equity is simply the market value of the equity.

    Again, I do explain this and the reasons, in my free lectures.

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