ExpertMedium2 marksShort Answer
ACCA · Question 33 · Interpretation of financial statements
Section A
Extracts from a company's statement of financial position show:
Ordinary share capital: $200,000
Retained earnings: $350,000
10% Bank loan (repayable in 5 years): $150,000
Trade payables: $80,000
What is the company's gearing ratio? (Calculate as Debt / (Debt + Equity) and enter as a percentage to one decimal place, e.g., 25.5)
Section A
Extracts from a company's statement of financial position show:
Ordinary share capital: $200,000
Retained earnings: $350,000
10% Bank loan (repayable in 5 years): $150,000
Trade payables: $80,000
What is the company's gearing ratio? (Calculate as Debt / (Debt + Equity) and enter as a percentage to one decimal place, e.g., 25.5)
How to approach this question
Identify Debt (long-term liabilities) and Equity (share capital + reserves). Plug into the formula: Debt / (Debt + Equity) * 100.
Full Answer
Debt = $150,000 (Bank loan). Equity = $200,000 (Share capital) + $350,000 (Retained earnings) = $550,000.
Gearing = Debt / (Debt + Equity) = $150,000 / ($150,000 + $550,000) = $150,000 / $700,000 = 0.21428... = 21.4%.
Common mistakes
Including trade payables in the debt figure, or calculating Debt/Equity instead of Debt/(Debt+Equity).
Practice the full ACCA FA — Financial Accounting Practice Exam 1
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