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Question) At 31 march 2015, Jasim had equity of $200 000 and debt of $100 000. Gearing should be taken as Debt /(Debt +equity)
Which of the following transactions would increase Jasim’s gearing compared to what it would have been had the transaction NOT taken place ?
Transaction: A bonus issue of equity shares of 1 for 4 was made during the year using other components of equity.
Hi sir for the above transaction, i just want to clarify if my understanding is correct.
Bonus issue has no link to debt. It only concerns equity. But since it’s a bonus issue , it provides no additional resources to Jasim since its issued for free. Therefore, it wont have any effect on equity. Hence, this transaction wont have any effect on Jasim’s gearing .
Am i right sir ?
This bonus issue is simply a matter of transferring a value from one pocket to the other – it’s a movement within equity so the total equity hasn’t changed
And, as you so rightly say, nor has the debt figure
So no change in the calculation
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