Tag: sources of business finance - 2

Questions Related to sources of business finance - 2

Discount on issue of debentures is ____________.

commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. Revenue loss

  2. Capital profits

  3. Capital loss

  4. Capital receipt

Show answer
Correct Option: C
Explanation:
 Capital Loss :-

A capital loss is the loss incurred when a capital asset, such as an investment or real estate, decreases in value. This loss is not realized until the asset is sold for a price that is lower than the original purchase price. 
Capital losses are generally tax deductible, but only when they are realized. That is, they only become deductible when the asset is actually sold (unless the stock is legally deemed worthless). Until that point, any losses are considered unrealized and are not deductible. 
The IRS considers nearly every asset owned by individuals and companies as capital assets and thus subject to capital gains taxes and capital loss deductions.

Debenture holders are the _________of the company.

commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. Creditors

  2. Owners

  3. Quasi

  4. Deemed owner

Show answer
Correct Option: A
Explanation:

A creditor is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed.[1] The first party, in general, has provided some property or service to the second party under the assumption (usually enforced by contract) that the second party will return an equivalent property and service. The second party is frequently called a debtor  or borrower. The first party is called the creditor, which is the lender of property, service, or money.

Creditors can be broadly divided into two categories: secured and unsecured. A secured creditor has a security or charge, which is some or all of the company’s assets, to secure the debt owed to him. This could be, for example, a mortgage, where the property represents the security. An unsecured creditor does not have a charge over the company’s assets.

Debentures ______________ forfeited for non-payment of call moneys.

commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. Can be

  2. Cannot be

  3. Both (A) & (B)

  4. None of above

Show answer
Correct Option: B
Explanation:
Generally total face value of debenture is demanded by company in installments I.e. Debenture application, Debenture allotment and Debentures calls accounts. It is usual that some of the debenture-holders fail to pay the amount of different installments when these are demanded by company. Such unpaid calls (installments) are called ‘Calls in arrears’. Under the provisions of Companies Act, 1956 debentures cannot be forfeited by company.

Because under section 122 of the Companies Act 1956 a contract with a company to take up and pay for any debenture may be enforced by a decree for specific performance. For the realisation of calls in arrears on debentures the company can only file a suit in the court. Company can charge interest on calls-in-arrears as provided in prospectus.

Sometimes, certain debenture-holders pay money against those calls also which have not yet en demanded by company. In such cases the amount received is credited to calls in advance account. If provided in prospectus, the company pays interest on this amount to debenture-holders at a specified rate. Interest is always calculated for the period, the advance has been received.

The balance of the Debentures Sinking Fund after redemption of debentures is transferred to____________.

commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. Profit and loss A/c

  2. General reserve A/c

  3. Debenture A/c

  4. Cash A/c

Show answer
Correct Option: B
Explanation:

The balance of the Debentures Sinking Fund after redemption of debentures is transferred to General Reserve account. It is the amount which is kept separately out of redeemed amount from debentures, that is why it is transferred to general reserve account.

Debentures redeemable after 10 years of issue are shown as___________.

commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. Long-term borrowings

  2. Other long-term liabilities

  3. Short-term borrowings

  4. Other short-term liabilities

Show answer
Correct Option: A
Explanation:

Debentures redeemable after 10 years of issue are shown as long-term borrowings since debenture holders invest for a long period of time. Debentures refer to the liabilities of the company that will not become due within one year.

Identify the merit(s) of Trade credit.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. It reduces the capital requirement.

  2. It helps the business focus on core activities.

  3. It does not require any negotiation or formal agreement.

  4. All of the above

Show answer
Correct Option: D
Explanation:

Trade credit can be defined as delay of payment permitted by the creditor or supplier of raw materials, consumables etc. against the goods purchased from him. Merits of Trade credit are:a) It reduces the capital requirement.b) It helps the business focus on core activities.

c) It does not require any negotiation or formal agreement.

Likely disadvantage(s) of using trade credit include ___________.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Loss of goodwill

  2. Higher prices of raw materials

  3. The opportunity cost of discount

  4. All of the above

Show answer
Correct Option: D
Explanation:
Trade credit is issued when goods and services are traded on credit. It is offered by one seller to the other.Disadvantage(s) of using trade credit include:a) loss of goodwill
b) higher prices of raw materials
c) the opportunity cost of discount.

Trade Credit is a major source of _____ finance for most business whether small or big.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Receivables

  2. Fixed capital

  3. Working capital

  4. None of the above

Show answer
Correct Option: C
Explanation:

Trade credit can be defined as delay of payment permitted by the creditor or supplier of raw materials, consumables etc. against the goods purchased from him. Trade Credit is a major source of working capital finance for most business whether small or big.

Trade credit as a source of funds has certain limitations, which is/are ______________________.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Only limited amount of funds can be generated through trade credit.

  2. It is generally a costly source of funds.

  3. Availability of easy and flexible trade credit facilities may induce a firm to indulge in over-trading.

  4. All of the above

Show answer
Correct Option: D
Explanation:
Trade credit is issued when goods and services are traded on credit. It is offered by one seller to the other.a) Trade credit as a source of funds has certain limitations, which are:b) limited amount of funds can be generated through trade credit.
c) It is generally a costly source of funds.
Availability of easy and flexible trade credit facilities may induce a firm to indulge in over-trading.

Match the items of List-I with the items of List-II:

List-I List-II
(a) Trade credit and other payables that arise in the firm's day-to-day operations (i) Maturity Financing
(b) Financing and asset needs over time (ii) Factoring
(c) A tool for accelerating the collection from the customers (iii) Spontaneous financing
(d) Seeking financial service to finance on its debtor's balances (iv) Lockbox system
organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. $(a) - (iv), (b) - (iii), (c) - (ii), (d) - (i)$

  2. $(a) - (iii), (b) - (ii), (c) - (iv), (d) - (i)$

  3. $(a) - (ii), (b) - (iv), (c) - (i), (d) - (iii)$

  4. $(a) - (i), (b) - (ii), (c) - (iii), (d) - (iv)$

Show answer
Correct Option: C