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8/3/2019 Borrowed Funds
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BORROWED FUNDS
-CH.PADMAVATI
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INTRODUCTION Business finance refers to money and credit
involved in business. It involves
procurement utilization
of funds for business purposes.
Sources of finance areOwners funds
Borrowed funds
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BORROWED FUNDS Borrowed funds consists of the amount
raised by way of loans and credit.
It is also known as borrowed capital.
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BORROWED FUNDS IN CASE OF VARIOUSFORMS OF BUSINESS ORGANIZATIONS Sole proprietorship
Partnership Firm
Loans raised by theproprietor on hispersonal security or on
the security of hispersonal assets.
Loans raised by thefirm on the personalsecurity of the partnersor on the security of theassets.
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Company Borrowings raised
by issue ofdebentures, through
loans or credit.
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CHARACTERISTICS Fixed obligations
Not permanent capital
No Right of control over management
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MERITS Tax advantage
Advantage of Trading on Equity
No Risk of Loss of Control
Lower Cost of Debt
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LIMITATIONS Involves fixed obligations
Requires adequate security
Exists the risk of insolvency
Increases the risk of owners
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SOURCES OF BORROWED CAPITALDebentures
Loans
Public deposits
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DEBENTURES
A debenture is a written instrument acknowledging adebt and containing provisions as regards therepayment of principle and the payment of interest ata fixed rate.
Debentures are generally freely transferable by thedebenture holder. Debenture holders have no rightsto vote in the company's general meetings ofshareholders, but they may have separate meetings or
votes e.g. on changes to the rights attached to thedebentures. The interest paid to them is a chargeagainst profit in the company'sfinancial statements.
http://en.wikipedia.org/wiki/Assignment_%28law%29http://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Assignment_%28law%298/3/2019 Borrowed Funds
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A loan is a type ofdebt. Like all debt instruments, aloan entails the redistribution of financial assets over
time, between the lenderand the borrower.
In a loan, the borrower initially receives or borrows
an amount ofmoney, called the principal, from the
lender, and is obligated to pay back or repay an
equal amount of money to the lender at a later time.
Typically, the money is paid back in regularinstallments, or partial repayments; in an annuity,
each installment is the same amount.
http://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Assethttp://en.wiktionary.org/wiki/lenderhttp://en.wiktionary.org/wiki/borrowerhttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Annuity_%28finance_theory%29http://en.wikipedia.org/wiki/Annuity_%28finance_theory%29http://en.wikipedia.org/wiki/Moneyhttp://en.wiktionary.org/wiki/borrowerhttp://en.wiktionary.org/wiki/lenderhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Debt8/3/2019 Borrowed Funds
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The loan is generally provided at a cost,referred to as intereston the debt, which
provides an incentive for the lender to engage
in the loan. In a legal loan, each of these
obligations and restrictions is enforced by
contract.
http://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Interest8/3/2019 Borrowed Funds
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PUBLIC DEPOSITS The term 'public deposit' implies any
money received by a company through the
deposits or loans collected from the public.
The public includes the general public,employees and shareholders of the company
but excludes the money received in the form
of shares and debentures.
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