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Gearing

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Gearing

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  • November 26, 2014 at 8:37 pm #213567
    Steven
    Member
    • Topics: 22
    • Replies: 15
    • ☆

    Sir, I was under the impression that Gearing ratio = Non current liabilities/Share Capital reserves *100

    I am attempting the below question from the ACCA practice exam = Z CO has long term loan liabilities of $324,000 and shareholders funds of $402,000. what is gearing ration.

    possible ans = 19.4%, 55.4%, 124.1%, 44.6%

    i was calculating by doing 324/402 *100

    Please help

    thanks

    November 27, 2014 at 6:32 am #213653
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54542
    • ☆☆☆☆☆

    Gearing can be calculated in either of two ways.

    It is either expressed as Long-term debt / equity (which is what you have done), or alternatively as long-term debt/(equity + debt)

    Given the choices available, the question was expecting you to calculate the second way.

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