Explain trade credit and bank credit as sources of short term finance for business enterprises. These funds are required to prepare and implement a rectification plan by 30 June 2021. For example, if shares were issued at par worth Rs. IV. The fees are designed to help those funds cover higher transaction costs and protect long-term investors by discouraging short-term, speculative trading. Identifying non-operating assets is an important step when determining the current value of a company since such assets are often left out when calculating the net worth of a business based on its earnings potential. Retained Earnings: For any company, the amount of earnings retained within the business has a direct impact on the amount of dividends. What are the differences between Equity Shares and Preference Shares? (b) Short Term Finance and Long Term Finance (а) Generated through outsiders such as suppliers The bank performs three types of functions namely, assistance to other financial institutions, direct assistance to industrial concerns and promotion and coordination of financial technique service. Debenture holders will get interest on debentures and will be paid in all circumstances, whether there is profit or loss will not affect the payment of interest on debentures. Short Answer Type Questions Answer: Debentures are similar to shares, however, debenture holders do not have voting rights on how the business is run. (b) Short Term Finance and Long Term finance These might be inventory, cash, assets held for sale, or trade and other receivables. A loss incurring firm has no source called retained earnings. It makes funds available without diluting the ownership of business. Answer: A lease is a contractual agreement, in which the owner of the asset grants the other party the right to use the asset in return for a periodic payment, but retains the title over the property. (c) Executives of the company (d) Guardian of the company Paid out of fund assets to the fund’s investment adviser. For more information on the fund type definitions, see Governmental Funds. A loan may have a fixed rate of interest or a variable interest rate, so that the rate of interest charged will be adjusted every three, six, nine or twelve months in line with recent movements in the Base Lending Rate. Answer: Discounting of bills of exchange means that the bank pays the person beforehand at less than face value and receives the payment on maturity equivalent to maturity value. Shares cannot be converted into debentures whereas debentures can be converted into shares. Do you agree? An exception to this general rule is made for inventory. It never makes lessee the owner of the asset. A business has fixed assets that originally cost 9,000 which have been depreciated by 6,000 to the date of disposal. An asset is a resource that you own or control that is expected to produce future economic value. Advantages: III. Answer: A large industrial enterprise can raise capital from the following sources. (c) 7. There is a greater degree of operational freedom and flexibility as the funds are generated internally. Lease rentals get tax advantage as they are deductible for computing taxable profits. Without non-recourse factoring, the company will still have to absorb losses. State the merits and demerits of public deposits and retained earnings as methods of business finance. Which deposits are directly raised from the public? State various sources of long term funds. Statement showing changes in working capital Retained earnings are better than other sources of finance because: V. Value Based Questions A business cannot function unless adequate funds are made available to it. Your IP: 165.22.139.213 Paid out of fund assets to cover distribution expenses. We will see the format and example of how it is done. They get dividend at a fixed rate and dividend is given on these shares before any dividend on equity shares. Do you agree? Periodic deposits are usually made into the fund, and cash or highly liquid assets are drawn out as needed. Furthermore, for preference shares to be attractive to investors, the level of payment needs to be higher than for interest on debt to compensate for the additional risks. Question 5. Debenture holder is a creditor of the company and cannot take part in the management of the company while a shareholder is the owner of the company. In lieu of these preferential rights, their voting rights are taken i.e. Answer: A company generally does not distribute all its earnings amongst shareholders in the form of dividend. [[Below is a discussion of shareholder fees . At one time, asset manager valuations were thought to gravitate toward about 2% of AUM. Another criterion used for asset recognition is that there must be an objective way to measure the asset. Another factor that may be of importance is the financial and taxation position of the company’s shareholders. Answer: Size of business and nature of business. Merits of Public Deposits. (a) 3. If he wants control in the company or participation in management of the company, he should invest in equity shares. Each example of the Working Capital below states the topic, the relevant reasons, and additional comments as needed. Answer: Question 10. If he is interested in middle term investment, he should invest in preference shares or debentures. It may increase the process of equity shares of a company. Convertible debentures which can be converted into shares at the option of debenture holder can be issued whereas shares convertible into debentures cannot be issued. When period of lease expires, the asset is returned to the lessor. Reserve Margin Working Capital . It provides added service: maintenance and upgrading. Discuss its pros and cons. (c) Use the asset for a specified period Net assets can now be combined into these three categories and you are no longer required to track each fund individually. The financial need of a business can be categorized in the following ways: Question 2. A lessee agreement imposes restrictions on usage of assets. In other words, it is the cost of purchasing a substitute asset for the current asset being used by a company. They include the following: Cash – Legal tender bills, coins, undeposited checks from customers, checking and savings accounts, petty cash Advantages to Debenture Holders, NCERT SolutionsAccountancyBusiness StudiesIndian Economic DevelopmentCommerce, Filed Under: CBSE, Class 11 Business Studies Tagged With: CBSE Class 11 Business Studies Solutions, CBSE Class 11 NCERT Solutions, CBSE Solutions, Free Class 11 Business Studies Solutions, Free NCERT Solutions, NCERT Books Solution, NCERT CBSE Class 11 Business Studies Solutions, NCERT CBSE Solutions, NCERT Class 11 Business Studies Solutions, NCERT Solutions, NCERT Solutions For Class 11 Business Studies Solutions, NCERT Solutions For Class 11 Business Studies Sources of Business Finance, NCERT Solutios For Class 11 Business Studies Chapter, RD Sharma Class 11 Solutions Free PDF Download, NCERT Solutions for Class 12 Computer Science (Python), NCERT Solutions for Class 12 Computer Science (C++), NCERT Solutions for Class 12 Business Studies, NCERT Solutions for Class 12 Micro Economics, NCERT Solutions for Class 12 Macro Economics, NCERT Solutions for Class 12 Entrepreneurship, NCERT Solutions for Class 12 Political Science, NCERT Solutions for Class 11 Computer Science (Python), NCERT Solutions for Class 11 Business Studies, NCERT Solutions for Class 11 Entrepreneurship, NCERT Solutions for Class 11 Political Science, NCERT Solutions for Class 11 Indian Economic Development, NCERT Solutions for Class 10 Social Science, NCERT Solutions For Class 10 Hindi Sanchayan, NCERT Solutions For Class 10 Hindi Sparsh, NCERT Solutions For Class 10 Hindi Kshitiz, NCERT Solutions For Class 10 Hindi Kritika, NCERT Solutions for Class 10 Foundation of Information Technology, NCERT Solutions for Class 9 Social Science, NCERT Solutions for Class 9 Foundation of IT, PS Verma and VK Agarwal Biology Class 9 Solutions, NCERT Solutions For Class 11 Business Studies Sources of Business Finance, NCERT CBSE Class 11 Business Studies Solutions, NCERT Class 11 Business Studies Solutions, NCERT Solutions For Class 11 Business Studies Solutions, NCERT Solutios For Class 11 Business Studies Chapter, NCERT Solutions for Class 10 Science Chapter 1, NCERT Solutions for Class 10 Science Chapter 2, Periodic Classification of Elements Class 10, NCERT Solutions for Class 10 Science Chapter 7, NCERT Solutions for Class 10 Science Chapter 8, NCERT Solutions for Class 10 Science Chapter 9, NCERT Solutions for Class 10 Science Chapter 10, NCERT Solutions for Class 10 Science Chapter 11, NCERT Solutions for Class 10 Science Chapter 12, NCERT Solutions for Class 10 Science Chapter 13, NCERT Solutions for Class 10 Science Chapter 14, NCERT Solutions for Class 10 Science Chapter 15, NCERT Solutions for Class 10 Science Chapter 16, CBSE Previous Year Question Papers Class 12, CBSE Previous Year Question Papers Class 10. If the amount of inventory on hand at year-end is significant, the value of such inventory should be recorded as an asset. Name zones of the Lessors and Lessees in India. Question 9. Current assets are the key assets that your business uses up during a 12-month period and will likely not be there the next year. List sources of raising long-term and short term finance. (c) Collects the client’s debt or account receivables There are no restrictions on the issue of debentures at a discount, whereas shares at discount can be issued only after observing certain legal formalities. Describe briefly the factors responsible for selecting a source of finance. Lessee pays a fixed periodic amount to the lessor. Example 2 - In September 2012, an employee signs up for a training class to be taken in November, 2012 (all other rules allowing such an obligation are met - see Question 12). New companies need expensive equipments to run the business: office, equipment leasing from larger companies like Apple. Public deposits are the deposits that are raised directly from (d) Internal and External Sources. State various sources of short and medium term funds. It reduces the probability of bad debt-debtors. From the company’s point of view, preference shares are advantageous in the following ways: However, dividend payments on preference shares are not tax deductible in the way that interest payments on debt are. They are not technically funds, but they share similarities. Take a car for example. Answer: Trade credit is the credit extended by one trader to another for the purchase of goods and services. Then it is their right to get exceptional returns in good times. It may result in higher payout obligations in case the equipment is not found useful and the lessee chooses for premature termination of the lease contact. State the meaning of finance. (d) 5. Answer: Debentures provide following advantages over issue of equity shares. Preference shares are preferred by company but not by investors. Short Answer Type Questions These instruments are called EDRs when private markets are attempting to obtain Euros. Shareholder will get a portion of the profits called dividend which is dependent on the profits of the company. Merits of Lease financing. Question 23. Required Capital Asset Disclosures Capitalization policy Policy for estimating useful lives of assets Beginning and end of the year balances, including accumulated depreciation Acquisitions during the year Sales or other dispositions during the year Depreciation expense for the current period Why collections (e.g., works of art or Trade credit can meet only limited financial needs. Finance is called ‘life blood of a business’. If he is interested in short term investment, then he should choose public deposits. Answer: Debtors are the people who owe money to a business. The dividend yield traditionally offered on preference dividends has been too low to provide an attractive investment compared with the interest yields on loan stock in view of the additional risk involved. Answer: It is not suitable for those investors who want to get a fixed return without failure. Another factor that may be of importance is the financial and taxation position of the company’s shareholders. Question 17. Question 7. But it's also important to understand the background and importance of current assets to a business. 5,00,000 in exchange for machinery worth Rs. Unexpectedly, in 2027, a major repair cost is incurred, dropping the fund’s balance to a low of $20,000. They represent the ownership of a company and therefore, the capital raised by issue of these shares is called owner’s funds. Preference shares also have a right to participate in excess profits left after payment being made to equity shares. Each business day, by law, mutual funds determine the price of their shares.. Higher Order Thinking Skills (HOTS) However, it is true that the use of retained earnings as a source of funds does not lead to a payment of cash. Explain. Another way to look at it is the accumulated ... Debt service funds are required if legally mandated or if financial resources are being accumulated for principal and interest payments maturing in future years. Asset Classification . This guide is designed to help you as a self-managed super fund (SMSF) trustee when valuing assets for superannuation purposes. They took the risk of uncertain returns. The current ratio is an example of a liquidity ratio, like the quick ratio and cash ratio, used to compare a company’s current assets. Answer: Following financial instruments are used in international financing: Question 6. What are retained earnings? Calculation Examples of Working Capital Example #1. Question 4. 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