(a) Explain what is a right of set-off, and when does a right of set off exist?

(b) Arthur Ltd has the following statement of financial position:

Statement of financial position before set-off

Loans Payable1,000, 000Loans receivable 1,200,000

Shareholder's equity 1,000, 000Non-current assets 800,000

2,000,0002,000,000

Assume that Arthur Ltd has an amount owing to Blayney Ltd of $300,000 and an amount receivable from Blayney Ltd of $400,000. Assuming a right of set-off exists, why would Arthur want to perform a set-off? What would be the impact on the debt to assets ratio?