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The debt equity ratio of Soapera Ltd. is 1:2. Which of the following would increase, decrease or not change the debt equity ratio? 

(i) Further issue of equity shares 

(ii) Cash received from debtors 

(iii) Sale of goods on cash basis 

(iv) Redemption of debentures 

(v) Purchase of goods on credit

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(i) Further issue of equity shares will decrease the debt equity ratio as the denominator (i.e. equity)will increase with the additional amount of equity with numerator (i.e. debt) remaining constant. 

(ii) Cash received from debtors affects the current assets which is neither a part of debt nor a part of equity. Thus, this increase in cash will not affect the debt equity ratio. 

(iii) Similarly, sale of goods on cash basis will affect the current assets only, thus bringing about no change in the debt equity ratio. 

(iv) Redemption of debentures will decrease the debt component with the amount being repaid. This will decrease the debt equity ratio as the numerator (i.e. debt) decreases while the denominator (i.e. equity) remains constant. 

(v) Purchase of goods on credit increases the current liabilities, leaving the debt equity ratio unchanged. 

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