Can someone PLEASE explain how gearing has been calculated at 0.63 and 0.54? Even if you try every possible combination including or not including the preference shares as debt you cant even get this (200+150)/(200+300+10) = 0.68????? (200+150)/(200+150+300+200+10) = 0.4069? (200)/(200+300+10+150)=0.303?? (200)/(200+300+10+150+200)=0.23?
Hi I think the examiners went for the D/E definition and treated preference shares as debt. Also, in the "retained earnings" part of the equity, we need to be careful to use the figure at the correct year end - the notes under the trial balance say that the figures quoted are opening balances. So, for example, for the balance sheet at 31 Dec 2004, we should have retained earnings of 250. With that in mind, I think it's a slight tweak to the first of your calcs: (200+150)/(300+10+250) = 0.63 Hope this helps Lynn
Hi The interest cover for this company is: (profit before tax and interest) / interest payable on debenture The interest payable on the debenture is 12% of 200 = 24 As the question doesn't give us an income statement, we have to work out the "profit before tax and interest" part of the income statement for ourselves. For 2004 for example, this is: 2,000 - (1,570 + 350 - 400) - (359 - 24) = 145. So, the 2004 interest cover = 145/24
