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Kindly answer the following question with some elaboration of your answer. Thanks,
A company has revalued no-current (fixed) assets during the year, recognizing a large surplus. What effect will this have on their financial ratios?
a) Gearing ratio will reduce.
b) Gross profit margin ratio will increase.
c) Gearing ratio will increase.
d) Net profit margin ratio will increase.I will answer this one, but before you ask me more please explain why you need the answers (are they not in the book you got the questions from?)!
The answer is (a).
You will know from your studies that any surplus on revaluation does not appear in the Statement of profit or loss (and so the answer cannot be (b) or (d)), but instead is shown as a separate reserve. This will mean that the total equity will increase (share capital + reserves) which in turn therefore means that the gearing ratio will reduce. So (a) in the answer.
Thanks again for the answer. Kindly note that we only got the questions bank which contains 100s of questions for which we need to prepare our selves. I only post those questions that we were either doubtful about them or didn’t find an answer for them.
Thanks, Shams
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