. How can you classify sources of funds on the basis of ownership (I Mark)
What is the position of debenture holders in relation to the company (1 Mark)
Why do banks hesitate to lend money to small scale industries (I Mark)
Name any one enterprise included in SSI category (I Mark)
ABC Limited is not having good liquidity position. It has invested in long term investment projects and will get smooth cash flow after 5 years. It is not in a position to bear risk of fixed burden of paying interest. Suggest which source of finance is suitable for this company (1 Mark)
Answers
Answer:
Q. How can you classify sources of funds on the basis of ownership?
Ans : On the basis of ownership, the sources can be classified into Owner's funds and Borrowed funds. ... The sources for raising borrowed funds include loans from commercial banks, loans from financial institutions, issue of debentures, public deposits and trade credit.
Q. What is the position of debenture holders in relation to the company?
Ans : Debenture holder is the owner of the company.
Q. Why do banks hesitate to lend money to small scale industries?
Ans : Banks give loan on collateral which ensures or it acts as a guarantee that their loan will be repaid. Small Scale Industries do not have such valuable asset which they can give as collateral so banks hesitate to give loans without collateral.
Q. Name any one enterprise included in SSI category.
Ans : Small scale industries (SSI) are those industries in which manufacturing, providing services, productions are done on a small scale or micro scale. For example, these are the ideas of Small scale industries: Napkins, tissues, chocolates, toothpick, water bottles, small toys, papers, pens.
Q. ABC Limited is not having good liquidity position. It has invested in long term investment projects and will get smooth cash flow after 5 years. It is not in a position to bear risk of fixed burden of paying interest. Suggest which source of finance is suitable for this company?
Ans : (i) Equity Share (ii) Retained Earning