The effect of setting off on the gearing ratio of the reporting entity is to:
A) Increase it if the net amount is a liability.
B) Increase it if the net amount is an asset.
C) Decrease it.
D) Leave it unchanged.
E) None of the given answers.

Question

Quizplus · Accepted Answer

Setting off is the process of offsetting the mutual debts and credits between two parties to a transaction. This results in a decrease in the overall gearing ratio of the reporting entity, as there is a reduction in the amount of debt or liabilities on the balance sheet. Therefore, the correct option is C) Decrease it.

The Effect of Setting Off on the Gearing Ratio of the Reporting