borrowed funds

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%29


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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/Debt


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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/Interest


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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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borrowed funds

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