By C. Paramasivan, T. Subramanian
The textual content is gifted within the least difficult language with effortless innovations. each one paragraph has been prepared lower than an appropriate heading for speedy retention of thoughts. This publication additionally comprises the perfect illustrations, solved difficulties and version questions.
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Extra resources for Financial Management
Example text
Retained earnings are called under different names such as; self finance, inter finance, and plugging back of profits. According to the Companies Act 1956 certain percentage, as prescribed by the central government (not exceeding 10%) of the net profits after tax of a Financial Management 36 financial year have to be compulsorily transferred to reserve by a company before declaring dividends for the year. Under the retained earnings sources of finance, a part of the total profits is transferred to various reserves such as general reserve, replacement fund, reserve for repairs and renewals, reserve funds and secrete reserves, etc.
Under capitalization may be corrected by the issue of bonus shares to the existing shareholders. 4. Reducing the dividend per share by way of splitting up of shares. Watered Capitalization If the stock or capital of the company is not mentioned by assets of equivalent value, it is called as watered stock. In simple words, watered capital means that the realizable value of assets of the company is less than its book value. ” Causes of Watered Capital Generally watered capital arises at the time of incorporation of a company but it also arises during the life time of the business.
Generally depreciation is changed against fixed assets of the company at fixed rate for every year. The purpose of depreciation is replacement of the assets after the expired period. It is one kind of provision of fund, which is needed to reduce the tax burden and overall profitability of the company. Retained Earnings Retained earnings are another method of internal sources of finance. Actually is not a method of raising finance, but it is called as accumulation of profits by a company for its expansion and diversification activities.