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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 — 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 → debt/equity unchanged.

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