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JKL measure gearingas debt:equity, based on book values.At 31 December 20X5the ratio is 2:3 and JKL would like this to be 2:5.
Which of the following transactions individually would achieve this?
Suggested Answer: B
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34 comments · newest first
LA
Lauryn
6 months ago
True, but it boosts equity from reserves.
GI
Gilberto
6 months ago
But it doesn't change debt levels.
LA
Lauryn
7 months ago
A bonus issue could also work.
CL
Claudio
7 months ago
It adds equity without increasing debt.
GE
Gerardo
7 months ago
D? How does that help?
CL
Claudio
7 months ago
I prefer option D.
GE
Gerardo
7 months ago
Why C?
GI
Gilberto
7 months ago
I think option C is the best choice.
RE
Renea
8 months ago
I’m not sure about D either, seems risky to issue preference shares now.
LE
Leontine
8 months ago
Definitely not A, that just shifts things around without changing the ratio.
CR
Cristy
8 months ago
Wait, can a bonus issue really help with the gearing ratio?
RO
Ronnie
9 months ago
I think option C makes the most sense here!
GE
Georgiann
9 months ago
The current ratio is 2:3, aiming for 2:5 means reducing debt or increasing equity.
KA
Karma
9 months ago
I bet JKL is wishing they had a money tree in their backyard right about now. That would make this whole debt:equity thing a lot easier!
NE
Nell
9 months ago
Hmm, I wonder if JKL considered using a magic wand to change the ratio. That would be a lot more fun than these boring financial transactions!
FR
Freeman
9 months ago
A) Bonus issue from the share premium account. This will increase the equity side of the balance sheet, but it won't change the debt side, so the ratio won't improve.
ED
Edelmira
9 months ago
C) Repayment of a 6 year term loan with the issue of 5 year redeemable debentures. This will reduce the debt side of the balance sheet, leading to a better debt:equity ratio.
TR
Tran
10 months ago
I think issuing redeemable preference shares could be a way to adjust the equity, but I need to double-check how that impacts the overall gearing calculation.
NO
Norah
10 months ago
I feel like revaluing investment property could increase equity, but I'm not confident if it would directly help achieve the desired ratio.
DA
Darrin
10 months ago
This question seems similar to one we practiced where we had to adjust equity to improve the gearing ratio. I think repayment of the loan might help.
LI
Lindsey
10 months ago
D) Issue of redeemable preference shares at par. This will increase the equity side of the balance sheet, which is exactly what JKL needs to achieve the desired debt:equity ratio.
JA
Jacki
10 months ago
B) Revaluation of investment property to an increased fair value. This will increase the asset side of the balance sheet, thereby improving the debt:equity ratio.
GI
Gilberto
11 months ago
It reduces debt and improves equity ratio.
HA
Harrison
11 months ago
I remember we discussed gearing ratios in class, but I'm not entirely sure how a bonus issue affects the equity side.
CH
Chaya
11 months ago
This is a good test of my financial accounting knowledge. I'll work through the calculations systematically and double-check my work to ensure I get the right solution.
JA
Janessa
12 months ago
The wording of this question is a bit tricky. I'll need to make sure I fully understand how each transaction affects the debt and equity components before selecting the right answer.
GE
Gerald
12 months ago
Okay, I think I've got this. I just need to analyze how each transaction would change the balance sheet and recalculate the ratio. I'm feeling pretty confident I can solve this.
MY
My
12 months ago
Hmm, I'm a bit confused about how the different transactions would impact the debt-to-equity ratio. I'll need to think through each option carefully.
JE
Jeff
1 year ago
This seems like a straightforward ratio calculation question. I'll need to work through the debt and equity values to see which transaction would shift the ratio as desired.
VA
Val
6 months ago
It reduces debt while maintaining equity.
LA
Laquita
6 months ago
Why do you think that?
KA
Katlyn
6 months ago
I think option C might be the best choice.
VA
Val
10 months ago
Sounds simple, but it can get tricky.
KA
Katlyn
11 months ago
Exactly! That should help achieve the desired ratio.