Which of the following statements is true in respect of AB’s ratios calculated at 31 December 20X9?

AB sold the majority of its operating equipment to LM for cash on 30 December 20X9 and then immediately leased it back under an operating lease.

AB used the cash proceeds from the sale to reduce its long term borrowings significantly.

No early repayment charge was levied by the lender.

Which of the following statements is true in respect of AB’s ratios calculated at 31 December 20X9?
A . AB’s return on capital employed would be lower as a result of this sale being recorded.
B . AB’s current ratio would be lower as a result of this sale being recorded.
C . AB’s non-current asset turnover would be lower as a result of this sale being recorded.
D . AB’s gearing ratio would be lower as a result of this sale being recorded.

View Answer

Answer: D