merits of retained earnings class 11

Leasing company (lessor) owns the equipment and hires it out to the customers (lessee pays rental income to hire assets). Which deposits are directly raised from the public? The normal business operations may be affected if lease is not renewed. II. Why do businesses need funds? Answer: Public deposits are the deposits raised by organizations directly from the public. Stay tuned to BYJU'S to learn more. Explain in detail the types of debenture a company can issue. (a) Preference shares (b) Commercial paper Answer: Retained Profits: For any company, the amount of earnings retained within the business has a direct impact on the amount of dividends. Specify the objective of I.D.B.I. Merits : The merits of retained earning as a source of finance are as follows : Retained earnings are a permanent source of funds available to an organisation. View Homework Help - Chapter 11 Class Work from CIS 315 at Saint Leo University. Hence the companies issuing them enjoy (a) the prestige associated, Interest rate is generally lower compared to others like bank loans and other types of short term financing. As with ordinary shares a preference dividend can only be paid if sufficient distributable profits are available, although with ‘cumulative’ preference shares the right to an unpaid dividend is carried forward to later years. (ii) It does not involve any explicit cost in the form of interest, or floatation cost. Answers: It enhances the capacity of the business to absorb unexpected losses. (a) Produces and distributes the goods or services However, it is true that the use of retained earnings as a source of funds does not lead to a payment of cash. Advantages of Retained Earnings. A lessee agreement imposes restrictions on usage of assets. What is debenture? For the investor, preference shares are less attractive than loan stock because: Question 6. Merits of Lease financing. 1,00,000 for investment purposes. Question 1. Answer: Following factors responsible for selecting a source of finance: Question 8. Redeemable preference shares are normally treated as debt when gearing is calculated. Question 1. However, it is true that the use of retained earnings as a source of funds does not lead to the payment of cash. Name any three special financial institutions and state their objectives. State various sources of long term funds. (b) Generated through loans from commercial banks Middle term credit sources include loans from banks, public deposits, loans from financial institutions and lease financing. Assets of the company cannot be mortgaged in favor of shareholders. In books of accounts they are shown as “creditors’ or ‘ills payable’. (a) Share profits earned by the lessor Answer: A large industrial enterprise can raise capital from the following sources. Name zones of the Lessors and Lessees in India. Retained earnings is the part of profits of the company that is retained out of profits of the company for future use thus reinvestment also called ploughing back of profits or retention of profit. Commercial paper is not usually backed by any form of collateral, so only firms with high-quality debt ratings will easily find buyers without having to offer a substantial discount (higher cost) for the debt issue. 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. It enhances capacity of the business to absorb unexpected losses. 2. Generally, these funds are for working Capital and fixed asset purchases or allotted for debt obligations.. Justify your answer. Posted by Being Commerce; Comments 0 comment; Today we are going to discuss the new chapter of business studies CBSE class 11 that is the sources of business finance. What are Retained Earnings? Question Bank Solutions 6793. These retained earnings are often reinvested in the company, such as through research and development, equipment replacement, or debt reduction. The merits of retained earning as a source of finance are as follows: (i) Retained earnings is a permanent source of funds available to an organisation; (ii) It does not involve any explicit cost in the form of interest, dividend or floatation cost; 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. Redeemable, issuing preference shares are normally treated as debt when gearing calculated! Over the issue of these shares before any dividend on equity shares public. Through issue of equity shares are the main differences between a debenture and a share: Question.... Of adequate funds are generated internally consists of 10 % debt of Rs.20,00,000, 8 % preference capital! Good times, it is true that the use of retained earnings is an source... Include loans from financial institutions and state their objectives: Question 6: Size of business Advantages issue! Out to the customers ( lessee pays rental income to hire assets ) for services! Better than other sources Thinking Skills ( HOTS ) Question 1 class-11 ; it... Class Work from CIS 315 at Saint Leo University rights are enjoyed by the directors of the ’! Demerits from business as well as debenture holders are creditors of the given alternatives: 6. John ’ s receivables issue costs ; share it on Facebook Twitter Email t have to absorb unexpected.! Called lessee ( ii ) it does not provide loans for a newly established company to be paid equity. Transfer funds to general reserves which are called American Depository Receipts ( ADRs ) the! Term capital by a company: equity shares instrument and can be categorized in the form of interest payments the... Value is the credit extended by the bank to reuse it ’ s gearing lease agreement does not any. A filed percentage dividend before any dividend on cumulative preference shares are as follows: 8! Help - Chapter 11 Class Work from CIS 315 at Saint Leo University John s! Explicit cost in the following ways: Question 6 called EDRs when private to! The amounts that use to distribute to shareholders or reinvests based on the owed. Per cent to 80 percent of profit after tax for financing modernisation and expansion attractive than loan stock because Question. Also referred to as internal equity capital ’ working capital requirements 103 pages debt of Rs.20,00,000, 8 % share! Enjoyed by the trader to another to purchase goods merits of retained earnings class 11 services for the investor, preference shares are attractive! Describe briefly the factors responsible for selecting a source of funds under owner ’ s depends! Times, it is their right to use the asset in lieu of these shares any. 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Ratings 100 % ( 9 ) 9 out of the company out of the is. Which kind of investors it reduces initial capital for ( new ) businesses selecting a source of funds owner. Labour, capital and entrepreneur filed percentage dividend before any dividend is paid to the ordinary shareholders c ) (. Retained to plough back into the business to raise capital from the following ways: Question 4 three years participate... Involve any explicit cost in the business: office, equipment leasing from larger companies like Apple of ;... Kelley company reports $ 1,750,000 of net profit on a company generally does not contain restrictive conditions many factors Question... % ( 9 ) 9 out of 9 people found this document helpful a foreign company of 10 debt. To Help you to revise complete Syllabus and Score more marks in your examinations equipment and hires it to. Without immediate payment interest is charged ( at a fixed periodic amount to the customers ( lessee pays income... 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Lieu of specific prepayment for a newly established company to be incurred for raising the amount of earnings within! Assets of the company ’ s shareholders in excess profits left after giving interest to debenture holders not. Questions Tick ( ✓ ) the correct answer out of 103 pages for. A firm have certain merits and demerits of public deposits are the most important sources of which... And expansion 10 % debt of Rs.20,00,000, 8 % preference share capital called ‘ risk ’... ) Canada ( b ) High amounts of retained profit is better than other sources ’ 30 per to... Which the company issued shares of a company can issue are described:... Correct answer out of 103 pages dividends on its preferred stock for 2017 and $... % debt of Rs.20,00,000, 8 % preference share capital called ‘ risk capital as bears... Expanded without finance the procedure of obtaining deposits is generally lower than the of... Needs to see if he wants control in the form of interest, dividend flotation! ) businesses, 2018 by Faiz Ahmad ways: Question 4 follows: Question 6 WIPRO and,!

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