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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › gearing ratio
HI
I have a question in multi choice questions chapter15 there was these question ” what is the effect of write off inventory on GEARING RATIO . the correct answer was ” INCREASE”. I CAN’T understand why increase ? could you help me?
thanks a lot
Writing off inventory reduces the profit, which therefore reduces reserves and therefore reduces the total equity. Less equity means the gearing ratio increases.
THANKS A MILLION
You are welcome 🙂