All about shares and debentures Presentation Transcript
ALL ABOUT SHARES & DEBENTURES
DR. T.K. JAIN
AFTERSCHO ☺ OL
centre for social entrepreneurship
sivakamu veterinary hospital road
bikaner 334001 rajasthan, india
FOR – CSE & PGPSE STUDENTS
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My purpose here is to give an introductory lesson on shares and debentures. If you have great ideas, you must become an entrepreneur. You need both ideas and money for social transformation. You can raise money through stock markets. These are introductory ideas. Let us change the society, change the world. Go with positive spirit. Please pass this presentation to all those who might need it. Let us spread knowledge as widely as possible. I welcome your suggestions. I also request you to help me in spreading social entrepreneurship across the globe – for which I need support of you people – not of any VIP. With your help, I can spread the ideas – for which we stand....
How do you issue debentures ? 1. against cash 2. against assets 3. as collateral security
What is “as collateral security”? ‘ Collateral Security’ implies additional security given for a loan. When a company takes a loan from bank or insurance company, it may issue its own debentures to the lender as collateral security against the loan in addition to any other security that may be offered, such an issue of debentures is known as “Debentures Issued as Collateral Security. No accounting entry is required for this. No interest is to be paid on this. It is not required to be shown in accounts also
Can we issue debentures on premium / discount ? Yes - if you issue on discount – provide for the loss learn how to adjust these losses
What to do of premium / discount ? Premium is part of securities premium and is a capital receipt and can be used for payment of premium on redemption of debentures. Discount on issue of debentures is a capital loss of the company and it is required to be shown on the assets side of the Balance Sheet under the heading “Miscellaneous Expenditure” until it is written off.
Can we redeem debentures on premium / discount ? Yes if you redeem at premium, the loss has to be provided in the year of issue
Where will the premium received on debenture be transferred ? It will go to securities premium account the entry will be : Bank a/c debit to debentures application debentures application a/c debit to debentures a/c credit to securities premium a/c credit
Is it necessary to create debenture redemption fund? Yes there are two methods : 1. you may transfer a fixed amount every year 2. you may transfer fluctuating amount / ratio based amount / reducing amount every year to this fund
What to do with redemption reserve fund after redemption ? This fund is transferred to general reserve on redemption of debentures
How to redeem debentures? There are many methods to redeem debentures : 1. you may redeem certain number of debentures every year. In this case you dont have have to transfer amount to debenture redemption reserve every year. 2. you may convert debentures into shares 3. you may buy your company's debentures from open market 4. you may redeem debentures in one shot (lump sum method).
How do you pay interest on debentures? It is generally paid half yearly. You may pay it on 31 March and on 30 Sept. On 31/3, when the interest on debentures falls due, you have to show it on balance sheet as outstanding debenture interest (short term liability). If your account closes on 31/12, you have to show interest for that period (from 1/10 to 31/12) as outstanding debenture interest (short term liability)
Is debenture interest a charge on profit and loss account Yes it is debited to profit and loss account but when we create a debenture redemption reserve, the money transferred to debenture redemption reserve is not a charge against profit and therefore that is taken out of P & L appropriation account
A company issues debentures of 20 lakhs to be redeemed at 10% premium in 4 years = 5 lakh each – from 3 rd year. How will you transfer the premium on redemption to P & L account ? Here you can transfer this loss in reducing balance method balance at the end of 1 st year = 20, balance at the end of 2 nd year = 20, balance at the end of 3 rd year = 15, balance at the end of 4 th year = 10, balance at the end of 5 th year = 5, balance at the end of 6 th year = 0, amount to be transferred in 1 st year 20/70*20= 5.7 lakhs amount to be transferred in 5 th year 5/70*20= 1.4 lakhs
What is cum interest and ex interest ? If the purchase price for the debentures includes interest for the expired period, the quotation is said to be “Cum-interest”, on the other hand, the purchase price for the debentures excludes the interest for the expired period, the quotation is said to be “Ex-interest”. Example : you purchase debenture on 31 march – interest is due. You buy debentures in 103 and interest of 3 is due on it. You have purchased it cum-interest and you have paid 3 for interest amount.
How to issue debentures on premium / discount ?
What are standards ?
Standards are the norms against which the performance is measured to find out the result.
What is the process of control?
measure the performance
Evaluate performance in light of the standard
Find deviation / difference in actual performance in comparison to the standard
Take corrective action
What are the essentials of effective control system ?
1. there should be proper feedback system
2. the control system should be objective (based on standards)
3. There should be prompt actions on deviations
4. Control should be positive, forward looking and not restrictive
5. There should be flexibility for innovations
6. control system should be as per the requirements of the organisation and economical
What is a budget ?
A budget is a written plan about what is to be done in future.
Budget is system of control and supervision
Budget feliciates comparison of performance with the plan
Budget helps us in achieving our objectives
What are the types of budgets ?
There are various types of budgets :
1. cash budget
2. expenditure budget
3. purchase budget
4. production budget
5. Revenue budget
6. Capital Expenditure budget
7. R & D budget
8. Administrative expenses budget
Type of budget relating to production?
1. material budget
2. labour budget
3. overhead budget
4. utilisation budget
What is budget balance sheet ?
It indicates the effect of various budget plans on assets and liabilities of the company and the overall impact on profitability
What is the role of budget committee?
executives in charge of major functions of business and includes the sales manager, the production manager, the treasurer and the controller, etc.work together to prepare and supervise budgets in the organisation. This is called budget committee.
What are the roles of budget committee?
Receive, review and suggest revisions in individual budget estimates.
Approve budgets and offer revisions, if required.
Formulate and announce general policies.
Receive and analyse budget reports.
Suggest necessary corrective actions to improve efficiency.
What is budgetary control?
1 prepare budget
2. review the performance against budget
3. take action to improve the performance
4. there should be follow up
What is a budgetary control system?
Establishment of a system of management in an organisation by which the company can have proper control on its working through budgets is called budgetary control system. It has many essential components like : 1. budget manual, 2. responsibilities, 3. budget key factor and budget time 4. clear organisation chart 5. proper work system regarding working of the organisation.
WHAT IS A BUDGET ?
It is a financial statement relating to future. It gives an estimate of revenue and expenses as per the plans of the organisation. Budget is a method of estimating the likely revenues and expenses
What is budget manual ?
It is a document containing details regarding procedures and processes in an organisation. Budget manual gives the details regarding the working of the organisation.
What is a budget key factor?
It is the critical factor which is responsible for the budget to work properly (as planned). It is to be identified carefully and properly estimated.
Example : demand of products could be a budget key factor
What is capital expenditure budget?
It is an outlay about proposed fixed investments / purchase of fixed assets.
What is a flexible budget ?
It is a is a budget which is designed to change in relation to the level of activity attained as against fixed budget, which doesnt change with change in activity .
Example : if 1000 units are produced, the expenditure will be 20000, and if 3000 units are produced, the expenditure may be upt 50000.
What is a zero base budgeting ?
It is a system of budgeting, where all activities are re-evaluated each time a budget is set. It is superior to traditional method, as we are evaluating each iterm and finding its rationale. As against zero base budgeting, in traditional budgeting, a budget is prepared just on the basis of last year's data. We try to add a little bit in the last year's figures as per this year's projections in traditional budget.
What is performance budgeting ?
In this system, there is a budget, which is linked to performance. It involves evaluation of performance of an organization in the context of both specific as well as overall objectives of the organization.
What is a master budget?
It is a consolidated budget prepared by combining the summaries of all the functional budgets
What are the dangers of budgeting ? It creates inflexibility There is a possibility of over or under budgeting (both the situation create problems) budget creates rigidity Budgets takes away attention from main objectives People give more importance to budget (not to the ultimate goals of the organisation ).
Effective budgeting ? The budget should be related to the goals of the organisation. Budget should be able to link the performance to the mission and vision of the organisation There should be flexible budgeting budget should be formulated by employee participation Budget should be actually implemented Budget limiting factors must be specified
How else can control be maintained ? Personal observation Guidance Feedback Statistical Data analysis Ratio analysis Break Even Analysis Analysis of financial data