If Pizza Hut raises Rs. 50 crores in debt. Which of the following happens in the same year?



0
is some firm raises a debt of 50 crores then expenses should increase by 50 crores,so why this is not an answer?? But the correct answer to this question is that revenue decreases.
i agree with this but expensesshould also increase,this should also be included in the answer.

3 Answer(s)


0

hello,, pizza hut need to pay their debts off ... so revenue will definitely decrease.. suppose...you start a business by borrowing rs. 4o lakhs from bank, eventually you earned a profit of say rs. 20lakhs . in that circumstance you will have to pay a part of your loan to the bank say rs. 10lakhs... that will leave you with rs. 10 lakhs roughly .... so your revenue is decreasing right. expense on the other hand is outflow of cash from your company ...it has nothin to do with raising debt because debt in the form of loan is a liability and the interest you will pay on loan is actually an expense for you ....same way if bank is giving you loan it is an expense for bank and not for u ... i hope i am clear...

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Just because Pizza Hut raises Rs.50 crores of debt does not mean all the 50 crores is spent on the same year. Hence expense will increase by an amount lesser than the 50 crores.

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thanx :)

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