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How to calculate Debt.

Rajesh (Business Accountant) (44 Points)

15 September 2010

Please tell me

a. How to calculate Debt from the following informarion:

Debt / Equity = 3:1

Net Worth = Rs.25,00,000

b. How to calculate Net worth as it seems somany ways we can calculate. Kindly give me a correct and full lesson for this

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2 Replies

Desperado (Cost And Management Accountant) (129 Points)
Replied 15 September 2010

Dear,

To my apprehension, B part of your query should be replied first.

Excess of total assets over total debts is called Net Worth of the company.
These are two methods, out of many others, to calculate the networth of a
company.
1- Net assets value method, in which the networth is
the result of Total Assets less Total Liabilities.

2- Shareholders equity method, in which
networth is the sum of paid up capital, reserve and surplus.

Based on the aforesaid formula, Debt will be calculated as under;

Debt/Equity = 3:1
Debt/Equity = 3/1

Debt/2,500,000 = 3/1 ( Since, as per second method, networth is equal to equity).
Debt = 2,500,000 * 3

Debt = 7,500,000

Best Regards,

Desperado.