A debenture is a document issued by a company as an evidence of a debt due from the company with or without a charge on the assets of the company. It is an acknowledgement of the company’s indebtedness to its debenture-holders. Debentures are financial instruments for raising long term debt capital. Debenture holders are the creditors of the company. In India, according to the Companies Act, 1956, the term debenture includes “debenture stock, bonds and any other securities of a company whether constituting a charge on the assets of the company or not.” Debenture-holders are entitled to periodical payment of interest at an agreed rate. They are also entitled to redemption of their capital as per the agreed terms. No voting rights are given to debenture-holders. Under section 117 of the Companies Act, 1956, debentures with voting rights cannot be issued. Usually debentures are secured by charge on or mortgage Continue reading
Business Finance Terms
Economic Value Added (EVA) – Definition, Calculation and Implementation
Economic Value Added (EVA) is a value based financial performance measure, an investment decision tool and it is also a performance measure reflecting the absolute amount of shareholder value created. It is computed as the product of the “excess return” made on an investment or investments and the capital invested in that investment or investments. “Economic Value Added (EVA) is the net operating profit minus an appropriate charge for the opportunity cost of all capital invested in an enterprise or project. It is an estimate of true economic profit, or amount by which earnings exceed or fall short of the required minimum rate of return investors could get by investing in other securities of comparable risk.” Economic Value Added (EVA) is a variation of residual income with adjustments to how one calculates income and capital. Stern Stewart & Co., a consulting firm based in New York, introduced the concept on Continue reading
Capital Profit and Revenue Profit
Meaning Of Capital Profits The amount of profit earned by the business from the sale of its assets, shares, and debentures is capital profit. If assets are sold at a price more than their book values then the excess of book value is capital profit. Similarly, if the shares and debentures are issued at a price more than their face value, then the excess of face value or premium is capital profit. Such profit is not earned in the ordinary course of the business. It is not available for the distribution to shareholders as dividend. Such profits are transferred to capital reserve. It is used for meeting capital losses. It is shown on the liabilities side of balance sheet. Meaning Of Revenue Profits Revenue profit is the difference between revenue incomes and revenue expenses. It is earned in the ordinary course of the business. It results from the sale of Continue reading
Accounts Receivable Management
Meaning of Accounts Receivables When goods and services are sold under an agreement permitting the customer to pay for them at a later date, the amount due from the customer is recorded as accounts receivables; So, receivables are assets accounts representing amounts owed to the firm as a result of the credit sale of goods and services in the ordinary course of business. The value of these claims is carried on to the assets side of the balance sheet under titles such as accounts receivable, trade receivables or customer receivables. This term can be defined as “debt owed to the firm by customers arising from sale of goods or services in ordinary course of business.” According to Robert N. Anthony, “Accounts receivables are amounts owed to the business enterprise, usually by its customers. Sometimes it is broken down into trade accounts receivables; the former refers to amounts owed by customers, Continue reading
Government Accounting – Meaning, Objectives and Features
Accounting is concerned with the processing of financial transactions of an entity. It generates and communicates necessary financial information to its users. It is, therefore, a process of recording, classifying and summarizing the financial transactions and communicating the results of its operations. There are different branches of accounting. One of its branches is government accounting. Government accounting is that branch of accounting, which is used in government institution. The government accounting is different from other branches of accounting such as commercial accounting. The accounting system used in government offices to record and report their financial transactions is known as government accounting. Government accounting is concerned with systematic and scientific recording of government revenues and expenditures. It is the systematic process of collecting, recording, classifying, summarizing and interpreting the financial transactions relating to the revenues and expenditures of government offices. It reveals how public funds have been generated and utilized for the Continue reading
Definition of Budget
A budget is a detailed plan of operations for some specific future period. It is an estimate of costs and benefits of programs to be undertaken and policies thereto prepared in advance of the period to which it is applied. Budget acts as a business barometer as it is a complete program of activities of the business for the period covered. According to Gordon and Shilling law, ‘budget is a predetermined detailed plan of action developed and distributed as a guide to current operations and as a partial basis for the subsequent evaluation of performance’. According to Weygandt, Kimmel & Kieso, “A budget is a formal written statement of management’s plan for a specified future time period, expressed in financial terms. It represents the primary method of communicating agreed-upon objectives throughout the organization. Once adopted, a budget becomes an important basis for evaluating performance. It promotes efficiency and serves as Continue reading