(a) Discuss any three characteristics of debentures.
(b) Discuss any three limitations of retained earning as a source of Finance.
(a) Discuss any three characteristics of debentures.
(b) Discuss any three limitations of retained earning as a source of Finance.
(a) Three characteristics of debentures :
(1) Debentures are part of borrowed fund capital and debenture holders are considered as the creditors of the company.
(2) A fixed rate of interest (decided in annual general meeting of the company) is paid to debenture holders respective of profit earning capacity of company.
(3) Debentures are aways redeemed or paid back on expiry of a fixed period of time.
(b) Limitations of retained earnings are as follows :
(1) There is imbalanced growth as undistributed profits remain in the same industry.
(2) Since the profits of a business are fluctuating, therefore, it is an uncertain source of funds.
(3) Excessive retaining of earnings causes dissatisfaction amongst the shareholders as this reduces the amount of the dividend receivable by them.
(a) Three characteristics of debentures :
(1) Debentures are part of borrowed fund capital and debenture holders are considered as the creditors of the company.
(2) A fixed rate of interest (decided in annual general meeting of the company) is paid to debenture holders respective of profit earning capacity of company.
(3) Debentures are aways redeemed or paid back on expiry of a fixed period of time.
(b) Limitations of retained earnings are as follows :
(1) There is imbalanced growth as undistributed profits remain in the same industry.
(2) Since the profits of a business are fluctuating, therefore, it is an uncertain source of funds.
(3) Excessive retaining of earnings causes dissatisfaction amongst the shareholders as this reduces the amount of the dividend receivable by them.
