...WLC 35 CHAPTER 8 – BORROWINGS & CHARGES CHAPTER 8 BORROWING POWERS OF A COMPANY BORROWING POWERS • Every trading company has an implied power to borrow, as borrowing is implied in the object for which it is incorporated. A trading company can exercise this power even if it is not included in the Memorandum. However non-trading company has no implied power to borrow and such power can be taken by it implied power to borrow and such power can be taken by it by including a clause to that effect in the Memorandum. A public company can borrow only after the receipt of Commencement Certificate. [Section 149(1)]. But a private company can borrow immediately after the incorporation The Board of Directors may borrow moneys by passing a resolution passed at the meetings of the Board. The board may delegate its borrowing powers to a Committee of Directors. Such a resolution should specifically mention the aggregate amount upto which the moneys can be borrowed by the Committee, the Managing Director, Manager or any other principal officer of the company on such conditions as it may prescribe [Section 292 (1) (c)] The moneys borrowed together with the moneys already borrowed by the company (excluding loans obtained from banks i.e. working capital) shall not exceed the aggregate of the paid up capital and the free reserves. [Section 293(1)(d)] It may be noted that a company may borrow in excess of its paid up capital and free reserves if it is so consented and authorized by the shareholders...
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...What avenues are available for for-profit and not-for-profit health care providers to increase their equity position? Nonprofit hospitals have physical plant needs (upgrades, renovations, expansions), outstanding bond debts, and pension challenges, all of which require large amounts of capital, which may be most readily available from private equity firms. What are the advantages and disadvantages to a taxpaying entity in issuing debt as opposed to equity? Advantages -Provides a tax shield, Is not dilutive from an ownership standpoint. Better for short-term financing. Issuing debt may be a signal for the company's strength because managers are confident that they won't go into bankruptcy and don't want to dilute existing shares. It can also signal a commitment to increase output to rival firms. Disadvantages - Increases the company's risk level. Company is more sensitive to economic downturns, interest rate variability, and changes in market conditions. Has to be re-paid. There is less risk appetite in making investment decisions as a result. Loan covenants have to be met. Assets may be taken as collateral if the firm cannot pay. . Explain the difference between subordinate debentures and debentures. A subordinated debenture is a bond or debt obligation issued by a corporation that has junior priority status relative to other bondholders of the company in the event of a liquidation or dissolution. Since the claims of subordinated debentures are lower than those of other...
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...Debenture 1 Debenture A debenture is a document that either creates a debt or acknowledges it, and it is a debt without collateral. In corporate finance, the term is used for a medium- to long-term debt instrument used by large companies to borrow money. In some countries the term is used interchangeably with bond, loan stock or note. A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company's capital structure, it does not become share capital.[1] Senior debentures get paid before subordinate debentures, and there are varying rates of risk and payoff for these categories. Debentures are generally freely transferable by the debenture holder. Debenture holders have no rights to vote in the company's general meetings of shareholders, but they may have separate meetings or votes e.g. on changes to the rights attached to the debentures. The interest paid to them is a charge against profit in the company's financial statements. Attributes • A movable property. • Issued by the company in the form of a certificate of indebtedness. • It generally specifies the date of redemption, repayment of principal and interest on specified dates. • May or may not create a charge on the assets of the company.[2] • Corporations often issue bonds of around $1000, while government bonds are more likely to be $5000. ...
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...asShare allotment and related matters:- What is meant by allotment of shares? The Supreme Court in Sri Gopal Jalan and Co. Vs. Calcutta Stock Exchange Association Ltd. (AIR 1964 S.C.250) defined allotment as “the appropriation out of the previously UNAPPROPRIATED capital of the company of a certain number of shares to a person”. Offer for shares are made on application forms supplied by the company. When an application form is accepted, it amounts to an allotment. The term allotment is not defined under the Companies Act. It means and implies a division of the share capital into defined shares of a particular value or or of different classes and assignment of such shares to different persons. What is a share? A ‘share’ means a share in the capital of the company. Section 82 of the Companies Act, 1956 describes share as A movable property, transferable in the manner provided by the articles of the company. What is a share certificate? Section 84 of the Company’s Act, 1956 describes a “share certificate” to mean a certificate under the Common Seal of the company, specifying any shares held by any member. A share certificate shall be prima facie evidence of title of the member to such shares. What is meant by transfer of shares? Shares, for which shares certificates are issued, can be transferred by making an application in the prescribed form signed by the transferor(the shareholder in whose name the share is registered in the Register of members) and...
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...Tutorial 10-Charges Q1. What are debentures? A1.PP7,8. • Defined in S. 4(1) CA– a debenture to include stock, bonds, notes and other securities, whether they constitute a charge on the assets of the co. or not, but beyond this the Act does not actually state what a debenture is. Levy v Abecorris Slate and Slabs Co. (1887) 37 Ch D 260 • It is a document which acknowledges a co’s indebtedness - s. 4(5) CA. • A debenture may therefore be an unsecured promise to pay, or a promise to pay secured by a mortgage or charge.( may be paid out of capital] • If the debenture is secured by charge on the co’s property, the debenture holder is a secured creditor. Q2.Elaborate on the title’ Fixed Charge’. A1.PP13 • Fixed charge: a. It is attached to a specific property; b. The property is identifiable – e.g. land, building; c. The co. cannot dispose of the property subject to the charge unless with the chargee’s/creditor’s consent. • It is a mortgage of one or more specific or ascertained and definite property of the co., such as a legal or equitable mortgages on a factory or a piece of land. Q3.List out the differences between debentures and shares. A2.PP9,10 DISTINCTION BETWEEN SHARES AND DEBENTURES • Share Holder(SH )is a member of the co. Debenture Holder (DH) is a creditor. • SH have right to attend and vote at general meeting – they have membership rights. Not creditors. • SH will rely on S. 33(1) CA to enforce his...
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...includes saving money and often includes lending money. The field of finance deals with the concepts of time, money, risk and how they are interrelated. It also deals with how money is spent and budgeted. In this Assignment I’m going to see what are the financing options available and which one of them will best suit my Company’s needs and result in profits. The best financing package for your business requires careful planning. An effective plan is based on these questions: 1. Why do you need money? 2. How are you going to use your money? 3. How much money do you need? 4.How much can you afford to pay for your funds? 5. How and when will you pay the money back? These questions should be asked before you need money. By planning ahead you will not have to make a last minute rush to get money. Last minute money tends to be more expensive! Understanding financial needs There are several different ways to solve any financial problem that your business encounters. Running to the bank for a loan may be neither the easiest nor the best solution to your problem. In order to develop the best financial plan to help you to succeed, you need to know two things. Firstly, what sources are available for the money that you need? Secondly, what is the best or the most appropriate source? There are four general categories of funding sources for your business. Classification of sources of Finance Sources of Finance According to Period | According to...
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...company's operating cash flows were unable to meet the obligation. One of the largest LBOs on record was the acquisition of HCA Inc. in 2006 by Kohlberg Kravis Roberts & Co. (KKR), Bain & Co., and Merrill Lynch. The three companies paid around $33 billion for the acquisition. It can be considered ironic that a company's success (in the form of assets on the balance sheet) can be used against it as collateral by a hostile company that acquires it. For this reason, some regard LBOs as an especially ruthless, predatory tactic. | 2. When you decide the capital structure of a firm, what factors you should consider?? Capital Structure is referred to as the ratio of different kinds of securities raised by a firm as long-term finance. The capital structure involves two decisions- a. Type of securities to be issued are equity shares, preference shares and long term borrowings (Debentures). b. Relative ratio of securities can be determined by process of capital gearing. On...
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...Pass necessary journal entries. 3. JCM Ltd. invited applications for issuing 20,000 equity shares of Rs. 20 each at a discount of 10%. The whole amount was payable on application. The issue was fully subscribed. Pass necessary journal entries. 4. On 31.1.2005 Janta Ltd. converted its Rs. 88,00,000, 6% debentures into equity shares of Rs. 20 each at a premium of Rs. 2 per share. Pass necessary journal entries in the books of the company for redemption of debentures. 5. Pappu and Munna are partners in a firm sharing profits in the ratio of 3 : 2. The partnership deed provided that Pappu was to be paid salary of Rs. 2,500 per month and Munna was to get a commission of Rs. 10,000 per year. Interest on capital was to be allowed @5% per annum and interest on drawings was to be changed @ 6% per annum. Interest on Pappu's drawings was Rs. 1,250 and on Munna's drawings Rs. 425. Capital of the partners were Rs. 2,00,000 and Rs. 1,50,000 respectively, and were fixed. The firm earned a profit of Rs. 90,575 for the year ended 31.3.2004. Prepare Profit and Loss Appropriation Account of the firm. 3 2 2 2 2 168 6. 7. What is meant by issue of debentures as 'Collateral Security' ? What is meant by reconstitution of a partnership firm ? Explain briefly any two occasions on which a partnership firm can be...
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...Q13-7. What is a debenture? Why do you think that this is the most common form of corporate bond in the United States? Is it is much less commonly used elsewhere? A13-7. Corporations issue bonds to raise money to expand their businesses, cover operating costs, or finance corporate takeovers or reorganizations. Corporate bonds are debt obligations issued by corporations. Corporate bonds may be either secured or unsecured. Debentures are unsecured bonds, which means that bondholders have nothing but the corporation's promise that interest payments will be made on time, or made at all. This promise is often called "full faith and credit." Debentures are not backed by equipment, securities portfolios, mortgages on real estate, or any other specific assets. Instead of guaranteed collateral, debenture-holders are secured in their principal investment by the general credit of the issuer. Thus, while secured bondholders have priority over debenture-holders in the event of default or bankruptcy, debenture-holders have the same priority as other general creditors, such as banks, insurance companies and other financial institutions, and greater priority than shareholders of common or preferred stock. Debentures usually offer higher yields than secured bonds, which is the expected trade-off for increased risk to the principal investment. Debentures are the most common type of corporate bond. These bonds have no specific collateral such as real property or equipment, but are...
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...DESIGN OF QUESTION PAPER ACCOUNTANCY Class - XII Time Allowed - 3 Hrs. Max. Marks - 80 The weightage to marks over different dimensions of the question paper shall be as under : A. Weightage to Content/ Subject units Content Unit Marks S. No. Part A : Accounting for Not for Profit Organizations, Partnership Firms and Companies 1. Accounting for not for profit organizations 2. 3. 4. Accounting for Partnership Firms Reconstitution of Partnership Accounting for Share Capital and Debentures TOTAL Part B : Financial Statement Analysis 5. 6. Analysis of Financial Statements Cash flow Statement Total OR Part C : Computerized Accounting 5 6. 7 Overview of computerized Accounting system Accounting using Database Management System(DBMS) Accounting Applications of Electronic Spread sheet TOTAL Grand Total (A+B)/(A+C) 10 5 20 25 60 12 8 20 5 8 7 20 80 68 B. Weightage to forms of Questions S. No. 1. 2. 3. 4. 5. Forms of Questions Very short answer type (VSA) Short answer type (SAI) Short answer type (SAII) Long answer type (LAI) Long answer type (LAII) Total Marks for each question 1 3 4 6 8 No. of questions 8 4 5 4 2 23 Total Marks 8 12 20 24 16 80 C. No. of Sections The question paper will have three sections A, B and C. The students will have choice between sections B and C. D. Scheme of Options There will be no overall choice. However, there is an internal choice in the questions of 8 marks. E. Weightage of difficulty level of questions S. No 1....
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...1. What is the likely level of MCI’s external financing needs over the next several years? Based on the Exhibit 9A in the case, we can calculate the Source and Use of Funds. As Exhibit 1 suggests, the company require about $4.8 billion during 1984 and 1990. This is basically due to the required new capex during the same period, which will be accumulated to $10.2 billion, and the increase of cash holding, $2.0 billion, as a use of funds and the company can generate funds from operation, only $7.8 billion. Therefore, the company needs to fill the gap by sourcing external finance of about $4.8 billion. This amount will vary depending primarily on two factors; 1) whether MCI can expand market share as forecasted amid the increasing competition with AT&T and 2) whether they can sustain good profitability as forecasted amid a concern that AT&T might decrease their pricing. 2. Discuss MCI’s past financial strategy, paying attention to the types of securities issued. After the initial public offering in 1972 and the additional common stock offering in 1975, from 1978 the company accelerated the financing activities due to the larger capex required, namely, 1) Convertible preferred stock in 1978, 1979 and 1980 at the cost of 10.5~12.3% 2) Subordinated debentures in 1980, 1981 and 1982 at the cost of 15.0~16.8% 3) Convertible subordinated debenture in 1981, 1982 and 1983 at the cost of 7.8~10.3% Convertible preferred stock: The company issued preferred stock of $25.8 million in...
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... | | |Q1 |Will interest paid to a partner on loan be debited to Profit & Loss Account even if there is a loss? |1 | |Q2 |Mention any two purposes for which the securities premium can be utilized |1 | |Q3 |What is the main purpose of admitting a new partner into partnership? |1 | |Q4 |What do you mean by redemption of debenture? |1 | |Q5 |Give one point of difference between capital reserves and reserve capital. |1 | |Q6 |Give any two circumstance in which gaining ratio may be applied. |1 | |Q7 |What do you mean by forfeiture of shares? |1 | |Q8 |Priya, Surya and Ceenu are in a firm sharing profits...
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...shareholder’s wealth. It is a combination of two words viz. wealth and maximization. A wealth of a shareholder maximizes when the net worth of a company maximizes. To be even more meticulous, a shareholder holds share in the company /business and his wealth will improve if the share price in the market increases which in turn is a function of net worth. This is because wealth maximization is also known as net worth maximization. Finance managers are the agents of shareholders and their job is to look after the interest of the shareholders. The objective of any shareholder or investor would be a good return on their capital and safety of their capital. Both these objectives are well served by wealth maximization as a decision criterion to business. What is a 'Factor' A factor is a financial intermediary that purchases receivables from a company. A factor is essentially a funding source that agrees to pay the company the value of the invoice less a discount for commission and fees. The factor advances most of the invoiced amount to the company immediately and the balance upon receipt of funds from the invoiced party. How it works • The business client enters into an agreement with the factoring company whereby the company will manage their sales ledger and credit...
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...manner for stakeholders and other interested parties. Within these concepts, accounting also develops the internal controls necessary in an accounting system, thus serving to minimise errors in recording the, often, large number of business transactions within an accounting period of a year. Appropriate internal controls will be developed to prevent the occurrence of theft, embezzlement, fraud and dishonest behaviour. These form an important part of the responsibilities of accounting. What do you consider the purpose of management accounting? Drury in Management and Cost Accounting has argued that Management Accounting consists of three functions: 1. Allocate costs between cost of goods sold and stock for internal external prompt reporting. 2. Provide relevant important to help Managers make better decisions 3. Provide information for planning, control and Performance Measurement. The Chartered Institute of Management Accounts [CIMA] prescribes the following definition in explanation of what it perceives to be the detailed role of Management Accountancy. Management accounting is: "An...
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...Draft detailing proposed changes to IFRS 3, an understanding of the areas of change and the philosophy behind the changes will assist in being prepared for changes when they occur. 2. DEMONSTRATION PROBLEMS Demonstration Problem 1: Business combination with 3 entities involved On 1 January 2004, Maori Ltd concluded agreements to take over the operations of War Ltd and to acquire the rest of the shares of Canoe Ltd. The balance sheets of the three companies as at that date were: Maori Ltd War Ltd Canoe Ltd Cash $20 000 $ 1 000 $ 12 500 Accounts receivable 35 000 19 000 30 000 Inventory 52 000 26 500 40 000 Property, plant & equipment (net) 280 500 149 500 107 500 Shares in Canoe Ltd (15 000 shares) 19 000 - - Debentures in Paddles Ltd 45 000 18 000 ______ $451 500 $214 000 $190 000...
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