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ACCA Applied Skills · Financial Reporting · Calculation and interpretation of accounting ratios and trends to address users' and stakeholders' needs

At 31 December, Group G reports consolidated equity attributable to owners of the parent of $600,000, non-controlling interest of $150,000, and non-current liabilities of $250,000 (all interest-bearing). Current liabilities include a $50,000 interest-bearing overdraft. Gearing is defined as debt / (debt + total equity), where debt is all interest-bearing borrowings. What is the gearing ratio?

Gearing is 28.6%. Debt is $300,000 (non-current $250,000 plus the $50,000 overdraft) and total equity is $750,000 including non-controlling interest. So 300,000 divided by 1,050,000 equals 28.6%. Omitting the overdraft would give 25.0%.

  1. A28.6%Correct
  2. B25.0%
  3. C30.0%
  4. D23.1%

Explanation

Debt = 250,000 + 50,000 = 300,000. Total equity including non-controlling interest = 600,000 + 150,000 = 750,000. Gearing = 300,000 / (300,000 + 750,000) = 28.6%. Excluding the overdraft gives 250/1,000 = 25.0%.

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