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Gearing on equity

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Gearing on equity

  • This topic has 1 reply, 2 voices, and was last updated 2 years ago by John Moffat.
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  • January 3, 2021 at 11:35 pm #601383
    isadiq
    Member
    • Topics: 5
    • Replies: 3
    • ☆

    in gearing question one activity did gearing including retained earnings (equity + retainted earning),
    another did prior charge capital/Equity, in this one ‘reserves’ are not included into equity. Why
    is there any difference in retained earnings and reserves?

    January 4, 2021 at 8:27 am #601400
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    Retained earnings are reserves.

    If we are calculating the gearing using book values, then equity is share capital plus reserves.

    If, on the other hand, we are calculating the gearing using market values, then equity is the market value of the shares (which effectively already includes the reserves).

    I do explain this in my free lectures on gearing.

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