After reading this article you will learn about the treatment of reserve and surplus. Treatment of Reserve: Setting up of reserves for working capital are very necessary for sound financial administration in order: i. To cover credit losses; ii. To liquidate debts; iii. To offset price fluctuations on inventories; iv. To provide for improvement and expansion; v. For depreciation and [...]
After reading this article you will learn about the concept of capital gearing and factors affecting it. Concept of Capital Gearing: Assume that a company can issue three types of securities, i.e., equity shares, preference shares and debentures. But what should be the proportion of these securities. For this purpose, we shall study Capital Gearing. Capital Gearing determines the ratio [...]
This article will help you to make comparison between over-capitalisation and under-capitalisation. Comparison # Over-Capitalisation: This state of affairs for a concern occurs where the amount of the shares issued is much in excess of actual requirement, and thus the rate of profit, i.e., the dividend rate will be too low to allow the shares to sell at par value. [...]