ACCA Applied Knowledge · Financial Accounting · Ratios
Which of the following would be included in 'debt' when calculating a gearing ratio?
Irredeemable preference shares are included in debt for gearing. They carry a fixed dividend like interest, so they are treated as prior-charge capital. Trade payables and tax payable are operating liabilities, and ordinary share capital forms part of equity, so none of those are debt.
- ATrade payables due within 30 days
- BIrredeemable preference sharesCorrect
- COrdinary share capital
- DTax payable
Explanation
Preference shares are treated as a fixed-return source of finance and included in debt for gearing purposes, along with loan notes and borrowings. Trade payables and tax payable are operating current liabilities, and ordinary shares are equity.
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