How to calculate Debt.

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.

Dear Desperado,

Thankyou for your clarification. It helps me a lot for practicing problems for ICWAI exam.

Regards,

Rajesh Ramachandran