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      Question

      What is the effect on debt-equity ratio when a company

      issues bonus shares?
      A Debt increases, equity decreases Correct Answer Incorrect Answer
      B Equity increases, debt decreases Correct Answer Incorrect Answer
      C No change in total equity; only share capital reclassification β€” ratio unchanged Correct Answer Incorrect Answer
      D Ratio always increases Correct Answer Incorrect Answer
      E Ratio always decreases Correct Answer Incorrect Answer

      Solution

      Bonus issue transfers reserves to share capital; total equity unchanged β†’ debt/equity unchanged.

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