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If it is calculated on a market value basis (as most sensibly it is calculated) then writing off inventory has no effect at all.
If it is calculated on a book value basis then it will have a minor effect (unless the write-off is enormous) because it will reduce profits, which in turn reduces retained earnings, which in turn reduces total equity. However the effect will be minimal and is hardly likely to be relevant in the exam!
I assume that you are watching my free lectures for Paper PM? The are a complete free course and cover everything needed to be able to pass the exam well.
Yes John, have been watching the lectures and doing the practice tests and thats why got this query as one of the questions of financial performance had a same question and i selected no effect on gearing though correct answer was gearing will increase.
Thanks a lot for your response. Explains well.
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