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• # 73613
• Sun 14 Aug 2011 09:57 PM

I know I'm not allowed to ask current exam questions on here but the query I have is from a past paper (Oct 2008).
I'm having a real problem with gearing. All through my mock exams if it relates to gearing I will get the question wrong. In my most recent onmline mock I dropped 6 points and they were all in one way or another to do with gearing.

So what am I missing?

Question from the October 2008 mock exam

If capital employed in a Ltd Co was £2.1m and long term borrowing was £1.0m, would the gearing be high or low?

In my answer I used

1.0m / (2.1m + 1.0m) x 100 = 32% low geared

The correct answer is : Highly geared

So where am I going wrong. I just can't my head around this.

I've gone on to the next mock exam and again I get the gearing question wrong. According to my course material it was high geared if it was above 50% and low geared if below. Are these figures wrong and it's different levels or is it my formula I've got wrong. I really need to get to the bottom of this soon as my real exam is just over a week away.

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• # 73631
• Mon 15 Aug 2011 02:00 PM

Thanks.

As I said I've gone on to the next mock exam and also got it wrong. I may be doing things wrong - in which case I need to find out the correct way sharpish as my exam is in 8 days. I'm fairly certain that (Feb 2009) Question 4, part 7 is wrong with the answers given. If you read the question it asks ".....the total assets of the company would increase TO what? " The answer seems (to me) to give the answer what it would increase BY. This may have been ok in a written exam so I hope the same thing won't appear in an exam marked by computer.

Edited at 15 Aug 2011 02:08 PM GMT

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• # 73640
• Mon 15 Aug 2011 07:40 PM

Hi Peasie,

I think it is debt/equity so 1m/2.1 = 48% - so I guess that would be high. I really dislike ratios (and partnerships!) and haven't got round to trying mocks yet, still working through the Kaplan book. My exam is not til mid Sept so I guess I still have some time.  I don't know what other info you were given in the question, but based on what you have given this is what I think it would be.

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• # 73641
• Mon 15 Aug 2011 08:06 PM

My second thought was it might be 1/2.1 x 100. So at what percentage does gearing become high? That is all the info that is given in the question. It is a standalone question not related to anything else.

I used to hate partnerships as well - and in particular the appropriation of profit. Now, partnerships are my favourite things (at least in exam situations). Now I can focus all my hatred on ratios. 

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