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The document discusses financial statements and their importance. It states that financial statements include an income statement, balance sheet, statement of changes in equity, and cash flow statement. These statements provide information on a company's financial position, performance, and cash flows. Specifically, the balance sheet reports assets, liabilities and equity at a point in time, while the income statement reports revenues, expenses and profits over a period of time. Financial statements are important as they allow for analysis of profitability, solvency, growth and financial strength. They help management make decisions and communicate with outside parties.

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0% found this document useful (0 votes)
57 views17 pages

Faa PDF

The document discusses financial statements and their importance. It states that financial statements include an income statement, balance sheet, statement of changes in equity, and cash flow statement. These statements provide information on a company's financial position, performance, and cash flows. Specifically, the balance sheet reports assets, liabilities and equity at a point in time, while the income statement reports revenues, expenses and profits over a period of time. Financial statements are important as they allow for analysis of profitability, solvency, growth and financial strength. They help management make decisions and communicate with outside parties.

Uploaded by

shubham kumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Financial Statement

Financial Statements are the collective name given to Income Statement and Positional
Statement of an enterprise which show the financial position of business concern in an
organized manner. We know that all business transactions are first recorded in the
books of original entries and thereafter posted to relevant ledger accounts. For checking
the arithmetical accuracy of books of accounts, a Trial Balance is prepared.

Trial balance is a statement prepared as a first step before preparing financial


statements of an enterprise which record all debit balances in the debit column and all
credit balances in credit column. To find out the profit earned or loss sustained by the
firm during a given period of time and its financial position at a given point of time is
one of the purposes of accounting. For achieving this objective, financial statements are
prepared by the business enterprise, which include income statement and positional
statement.

These two basic financial statements viz:


(i) Income Statement, i.e., Trading and Profit & Loss Account and

(ii) Positional Statement, i.e., Balance Sheet portrays the operational efficiency and
solvency of any business enterprise.

The income statement shows the net result of the business operations during an
accounting period and positional statement, a statement of assets and liabilities, shows
the final position of the business enterprise on a particular date and time. So, we can
also say that the last step of the accounting cycle is the preparation of financial
statements.

Income statement is another term used for Trading and Profit & Loss Account. It
determines the profit earned or loss sustained by the business enterprise during a
period of time. In large business organization, usually one account i.e., Trading and
Profit & Loss Account is prepared for knowing gross profit, operating profit and net
profit.

On the other hand, in small size organizations, this account is divided into two parts i.e.
Trading Account and Profit and Loss Account. To know the gross profit, Trading
Account is prepared and to find out the operating profit and net profit, Profit and Loss
Account is prepared. Positional statement is another term used for Balance Sheet. The
position of assets and liabilities of the business at a particular time is determined by
Balance Sheet.

Ms. Anjali Prava Mishra


Asst. Prof. (Finance and Accounting)
Objective and Importance:
(i) Knowing Profitability of Business:
Financial statements are required to ascertain whether the enterprise is earning
adequate profit and to know whether the profits have increased or decreased as
compared to the previous year(s), so that corrective steps can be taken well in advance.

(ii) Knowing the Solvency of the Business:


Financial statements help to analyse the position of the business as regards to the
capacity of the entity to repay its short as well as long term liabilities.

(iii) Judging the Growth of the Business:


Through comparison of data of two or more years of business entity, we can draw a
meaningful conclusion as regard to growth of the business. For example, increase in
sales with simultaneous increase in the profits of the business, indicates a healthy sign
for the growth of the business.

(iv) Judging Financial Strength of Business:


Financial statements help the entity in determining solvency of the business and help to
answer various aspects viz., whether it is capable to purchase assets from its own
resources and/or whether the entity can repay its outside liabilities as and when they
become due.

(v) Making Comparison and Selection of Appropriate Policy:


To make a comparative study of the profitability of the entity with other entities
engaged in the same trade, financial statements help the management to adopt sound
business policy by making intra firm comparison.

(vi) Forecasting and Preparing Budgets:


Financial statement provides information regarding the weak-spots of the business so
that the management can take corrective measures to remove these short comings.
Financial statements help the management to make forecast and prepare budgets.

(vii) Communicating with Different Parties:


Financial statements are prepared by the entities to communicate with different parties
about their financial position. Hence, it can be concluded that understanding the basic
financial statements is a necessary step towards the successful management of a
commercial enterprise.

Financial statements (or financial reports) are formal records of the financial activities
and position of a business, person, or other entity.

Ms. Anjali Prava Mishra


Asst. Prof. (Finance and Accounting)
Relevant financial information is presented in a structured manner and in a form which
is easy to understand. They typically include four basic financial statements
accompanied by a management discussion and analysis:

1. A balance sheet or statement of financial position, reports on a


company's assets, liabilities, and owners equity at a given point in time.
2. An income statement—or profit and loss report (P&L report), or statement of
comprehensive income, or statement of revenue & expense—reports on a
company's income, expenses, and profits over a stated period of time. A profit
and loss statement provides information on the operation of the enterprise.
These include sales and the various expenses incurred during the stated period.
3. A statement of changes in equity or statement of equity, or statement of retained
earnings, reports on the changes in equity of the company over a stated period
of time.
4. A cash flow statement reports on a company's cash flow activities, particularly its
operating, investing and financing activities over a stated period of time.
5. Statement of notes to account
Qualitative characteristics of Financial Statements
 Comparability
 Understandability
 Reliability
 Relevance
Objectives of Financial Statements
The objective of financial statements is to provide information about
the financial position, performance and changes in financial position of an enterprise that is
useful to a wide range of users in making economic decisions." Financial
statements should be understandable, relevant, reliable and comparable

Adjustment item
st nd
1 Effect 2 Effect

Credit side of Trading Assets side of


Closing Stock
a/c Balance Sheet

Outstanding
Debit side of Trading
Expenses Liabilities side of
and Profit & Loss a/c
by way of addition to Balance Sheet

expenses

Ms. Anjali Prava Mishra


Asst. Prof. (Finance and Accounting)
Prepaid
Debit side of Trading
Expenses Assets side of
and Profit & Loss a/c
by way of deduction Balance Sheet

from Expenses

Accrued Income Credit side of profit &


(income earned but loss a/c by way of Assets side of Balance Sheet
not received) addition to income

Income Received in Credit side of Profit &


Advance (income loss a/c by way of Liabilities side of
received but not deduction from the the Balance Sheet
earned in the income
financial year)

Income Received in Credit side of Profit &


Advance (income loss a/c by way of Liabilities side of
received but not deduction from the the Balance Sheet
earned in the income
financial year)

Debit side of Profit &


Depreciation Assets side of Balance Sheet by
Loss a/c
way

of deduction from

the value of concerned asset.

Bad Debts Assets of Balance Sheet by


Debit side of Profit &
way of deduction from
Loss a/c
sundry debtors.

Ms. Anjali Prava Mishra


Asst. Prof. (Finance and Accounting)
Adjustment item
2nd Effect
1st Effect

Interest on Capital Liabilities side of the Balance


Debit side of Sheet by way of addition to
Profit & Loss a/c the capital.

Interest on Drawings Liabilities side of Balance


Sheet by way of addition to
Credit side of
Profit & Loss a/c the drawings which are
deducted from the capital.

Provision for Doubtful


Debts Debit side of Profit &
Assets side of Balance Sheet
Loss a/c or by way of
by way of deduction from
addition to Bad Debts.
sundry Debtors (After
(Old provision for
deduction of further bad
doubtful debts at the
debts, if any).
beginning of the year
will be deducted)

Provision for Discount Deduction from Debtors


on Debtors (after deduction of further
Debit side of Profit & bad debts and provision

for doubtful debts) on the


Loss a/c
assets side of the Balance
Sheet.

Reserve for Discount on


Liabilities side of the Balance
Creditors Credit side of Profit &
Sheet by way of deduction
Loss a/c

Ms. Anjali Prava Mishra


Asst. Prof. (Finance and Accounting)
from creditors.

If the stock is fully


insured Credit side of
Assets side of Balance
Trading
Sheet
Account

If the stock is partly


insured It will be shown on the
Loss of stock by fire is shown
credit side of Trading
on assets side of Balance
Account with the value
Sheet with the amount which
of stock and shown on
the debit side of Profit & is to be realized from the
Loss a/c for the part of insurance co. i.e., that part of
the loss which is insured.
the stock which is not
insured

If the stock is not


Debit side of Profit & Loss
insured Credit side of Trading
a/c
a/c

Managers Commission
Liabilities side of Balance
Debit side of Profit &
Sheet
Loss a/c

Reserve Fund Liabilities side of the


Debit side of Profit &
Balance Sheet. If reserve
loss a/c along with net
fund is already there, it will
profit in the inner
be shown by addition to the
column
existing reserve fund on the

Ms. Anjali Prava Mishra


Asst. Prof. (Finance and Accounting)
liabilities side of the Balance
Sheet.

Goods distributed as
Debit side of Profit and Loss
Free Samples Debit side of Trading
a/c as Advertisement
a/c by way of deducted
expenses.
from the purchases
Before Charging Commission = Rate/100* Net Profit before commission
After Charging Commission = Rate/ 100+Rate* Net Profit before commission
1. When Provision for Doubtful debt appears in the Trial Balance and there is
neither bad debt nor further Provision is given:
It will be shown in the credit side of the profit and loss account as is it a gain i.e.
unutilised portion of the provisions made in the last year.
2. When both bad debt and Provision for Doubtful debt appears in the Trial
Balance and there is no further Provision is given in adjustment:
• The amount of provision is subtracted from the given bad debt in debit side of
the profit and loss account.
• If the amount of provision is more than the given bad debt, the excess of
provision over the bad debt is shown on the credit side of the profit and loss
account.
3. When both bad debt and Provision for Doubtful debt appears in the Trial
Balance and there is further bad debt and Provision is given in adjustment:
In this situation, bad debt in the trial balance is added with further bad debt and
provision required given in the adjustment. From the total so obtained the existing
provision given inside the trial balance is deducted. The net amount, thus arrived at
appears on the debit side of the profit and loss account. If the existing provision is more,
the net amount will go to the credit side of the profit and loss account.
Manufacturing Account
The manufacturing account is an account in the general ledger which is used to
accumulate all the manufacturing costs of goods completed by a business during an
accounting period.
For a manufacturing business the manufacturing account needs to be prepared before
completing the trading and profit and loss accounts.

Ms. Anjali Prava Mishra


Asst. Prof. (Finance and Accounting)
Difference Between Manufacturing and Trading Account

The manufacturing account accumulates costs of production and is only used by a


manufacturing business. The trading account is used to determine the gross profit on
finished goods and is used by both trading and manufacturing businesses.
Manufacturing Account Closed to the Trading Account

This cost structure usually includes all of the following:

 The cost of direct materials used in the manufacturing process during the period.

 The cost of direct labor used in the manufacturing process during the period.

 The amount of overhead allocated to manufactured goods during the period.

How Are Cost of Goods Sold and Cost of Sales Different?

Companies refer to either the cost of goods sold (COGS) or the cost of sales on
the balance sheet, or in some cases both, leading to some confusion for investors about
the meaning and implication of the two terms. However, fundamentally, there is almost
no difference between a company's listed cost of goods sold (COGS) and cost of
sales. The two terms are typically used interchangeably in an accounting context.
Financial statement analysis

Financial statement analysis (or financial analysis) is the process of reviewing and
analyzing a company's financial statements to make better economic decisions to earn
income in future. These statements include the income statement, balance
sheet, statement of cash flows, notes to accounts and a statement of changes in equity (if
applicable). Financial statement analysis is a method or process involving specific
techniques for evaluating risks, performance, financial health, and future prospects of
an organization.

It is used by a variety of stakeholders, such as credit and equity investors, the


government, the public, and decision-makers within the organization. These
stakeholders have different interests and apply a variety of different techniques to meet
their needs. For example, equity investors are interested in the long-term earnings
power of the organization and perhaps the sustainability and growth of dividend
payments. Creditors want to ensure the interest and principal is paid on the
organizations debt securities (e.g., bonds) when due.
Types of Financial Statement Analysis

Ms. Anjali Prava Mishra


Asst. Prof. (Finance and Accounting)
Financial statements analysis is classified according to their Materials used, Modus
operandi, firms involved and Time Horizon or objective.
Financial statement analysis according to materials used includes:
1. Internal Analysis
Internal analysis is made by the top management executives with the help of
Management Accountant. The finance and accounting department of the business
concern have direct approach to all the relevant financial records. Such analysis
emphasis on the overall performance of the business concern and assessing the
profitability of various activities and operations.
2. External Analysis
Shareholders as investors, banks, financial institutions, material suppliers, government
department and tax authorities and the like are doing the external analysis. They are
fully depending upon the published financial statements. The objective of analysis is
varying from one party to another.
Financial statement analysis according to time horizon:
3. Short Term Analysis
The short term analysis of financial statement is primarily concerned with the working
capital analysis so that a forecast may be made of the prospects for future earnings,
ability to pay interest, debt maturities – both current and long term and probability of a
sound dividend policy.
A business concern has enough funds in hand to meet its current needs and sufficient
borrowing capacity to meet its contingencies. In this aspect, the liquidity position of the
business concern is determined through analyzing current assets and current liabilities.
Hence, ratio analysis is highly useful for short term analysis.
4. Long Term Analysis
There must be a minimum rate of return on investment. It is necessary for the growth
and development of the company and to meet the cost of capital. Financial planning is
also necessary for the continued success of a company. The fixed assets structure,
leverage analysis, ownership pattern of securities and the like are made in the long term
analysis.
Financial statement analysis according to modus operandi include Horizontal and
vertical analysis.

Ms. Anjali Prava Mishra


Asst. Prof. (Finance and Accounting)
5. Horizontal Analysis
It is otherwise called as dynamic analysis. When financial statements for a number of
years are viewed and analyzed, the analysis is called horizontal analysis. The
preparation of comparative statements is an example of this type of analysis.
6. Vertical Analysis
It is otherwise called as static analysis. Under this type of analysis, the ratios are
calculated from the balance sheet of one year and/or from the profit and loss account of
one year. It is used for short term analysis only.
Financial statement analysis according to firms include:
7. Cross sectional or Inter firm Analysis
Inter-firm comparison is the technique which studies the performances, efficiencies,
costs and profits of various concerns in an industry with the help of exchange of
information in order to have a relative comparison.
8. Time series or Intra Firm Analysis
Intra-firm comparison means comparison of two or more departments or divisions of
the same business unit with the objective of meaningful analysis in order to improve the
operational efficiency of all the departments or divisions. Both, the inter
firm comparison and intra-firm comparison have the same objectives.
VARIOUS METHODS OF FINANCIAL STATEMENT ANALYSIS (Refer to management
accounting of Kalyani Publisher, Author- Sharma Gupta)

SHARE

Types of Share

Basically there are three types of shares into which the whole capital of the company is
divided.

1. Equity shares
2. Preference shares
3. Deferred Shares

1. Equity Shares

Ms. Anjali Prava Mishra


Asst. Prof. (Finance and Accounting)
Equity share are also called ordinary shares. The holders of equity shares are the real
owners of a company. The ordinary shareholders have voting rights in the meetings of
the company. They are entitled to receive dividend as are declared by the board of
directors. The equity share capital cannot be redeemed during the life time of the
company.

Merits of Equity Shares

The merits of equity shares are as under:-

1- Venture capital. Equity Shares are the most important and popular type of shares. It
is therefore, called a venture capital of the company.

2- No burden on a company’s resources. Since the dividend is to be paid out of the


profit of the company, therefore they impose no load on the resources of a company.

3- Provision of long term finance. The equity shares provide long term finance to the
company.

4- No charge on the assets. The equity shares do not create any charge on the assets of
a company. The Company can raise further funds. If it desires, through mortgage of
property or other assets.

5- Payment of profit. Equity shareholders are paid profit after all the other claims are
met by the company.

6- Rate of dividend. The rate of dividend on ordinary shares depends upon the profit of
the company.

2. Preferences Shares

Preferences Share as the name suggested, it has certain preferences as compared to


other types of shares. The main preferences of these shareholders over others in brief
are as under:-

1. The first preference is for compensation of dividend. Whenever the company


distributes profits, the dividend is first paid on preferences share capital.

Ms. Anjali Prava Mishra


Asst. Prof. (Finance and Accounting)
2. In case of winding up the company, the preferences shareholders have a prior
right in regard to repayments of capital.

Types of Preferences Shares

The main types of preference shares are as under:-


(i) Cumulative preference shares:
A preference share is said to be cumulative when the arrears of dividend are cumulative
and such arrears are paid before paying any dividend to equity shareholders.
(ii) Non-cumulative preference shares:
In the case of non-cumulative preference shares, the dividend is only payable out of the
net profits of each year. If there are no profits in any year, the arrears of dividend
cannot be claimed in the subsequent years. If the dividend on the preference shares is
not paid by the company during a particular year, it lapses. Preference shares are
presumed to be cumulative unless expressly described as non-cumulative.
(iii) Participating preference shares:
Participating preference shares are those shares which are entitled in addition to
preference dividend at a fixed rate, to participate in the balance of profits with equity
shareholders after they get a fixed rate of dividend on their shares. The participating
preference shares may also have the right to share in the surplus assets of the company
on its winding up. Such a right may be expressly provided in the memorandum or
articles of association of the company.
(iv) Non-participating preference shares:
Non- participating preference shares are entitled only to a fixed rate of dividend and do
not share in the surplus profits. The preference shares are presumed to be non-
participating, unless expressly provided in the memorandum or the articles or the
terms of issue.
(v) Convertible preference shares:
Convertible preference shares are those shares which can be converted into equity
shares within a certain period.
(vi) Non-Convertible preference shares:
These are those shares which do not carry the right of conversion into equity shares.
(vii) Redeemable preference shares:

Ms. Anjali Prava Mishra


Asst. Prof. (Finance and Accounting)
A company limited by shares, may if so authorized by its articles issue preference shares
which are redeemable as per the provisions laid down in Section 80. Shares may be
redeemed either after a fixed period or earlier at the option of the company.
(viii) Irredeemable/Guaranteed preference shares:
These shares carry the right of a fixed dividend even if the company makes no or
insufficient profits.

3. Deferred Shares
Deferred Shares are also called founders Shares. They were used to be issued to the
promoters of the company. Dividend on deferred shares was paid after the claim of all
other shareholders has been met including equity shareholders. The deferred
shareholder has one vote. These shares enabled the promoters to control the working of
the company with a very small investment.
Share Capital
The term capital usually means a particular amount of money with which a business is
started. In Indian Companies Act, it has been used in different senses in various parts of
the Act, but in general it means the money subscribed pursuant to Memorandum of
Association of the Company. Capital, in fact, represents the assets with which the
undertaking is carried on.
The sum total of nominal value of shares of a company is known as its share capital. In
case of companies, the terms ‘capital’ and ‘share capital’ have been held to be
synonymous. Capital to be stated in the Memorandum of Association and Articles of
Association of the Company.
Types of Share Capital:
Authorised/Nominal/Registered Capital:
At the time of registration of a company, the Memorandum of Association mentions the
amount of capital a company is authorised to raise from the public by selling shares
which is known as Authorised Capital or Normal Capital or Registered Capital.
It is the maximum amount of share capital that a company can issue. In the case of a
limited company, the Memorandum shall contain the amount of Capital by which a
company is proposed to be registered and the division thereof into shares of fixed
amount. In short, it is the maximum amount of capital which a company will have
during its lifetime—unless it is increased.

Ms. Anjali Prava Mishra


Asst. Prof. (Finance and Accounting)
Issued Capital:
Generally, a part of the authorised capital is issued to the public for subscription which
is known as issued capital, i.e., it is the nominal value of the shares which are offered to
the public for subscription. Usually, a company does not issue all its capital at a time, i.e.,
issued capital is less than the authorised capital. If all shares are issued, issued capital
and authorised capital will be the same.
Subscribed Capital:
A part of the issued capital which is subscribed by the public is known as subscribed
capital. It does not necessarily mean that all the shares which have been issued will be
taken over by the public.
In other words, the share capital of the number of shares which are taken over by the
public is called subscribed capital, i.e., the portion of issued share capital which is
paid/subscribed by the shareholder is known as subscribed capital.
Called-Up Capital:
Generally, the shareholders pay the price of the shares by installments, viz., application,
allotment, First call, Final call etc. Therefore, the portion of the face value of the shares
which the shareholders are called upon to pay or the company has demanded to pay is
called Called-up capital.
Uncalled Capital:
The unpaid portion of the subscribed capital is called Uncalled Capital. In other words, it
is the remainder of the issued Capital which has not been called. However, the company
may call this amount at any time but that must be subject to the terms of issue of shares.
Paid Up Capital:
The amount actually paid by the shareholders is known as Paid-up Capital.
Reserve Capital or Reserve Liability
According to Sec. 99 of the Companies Act, 1956, Reserve Capital is that part of uncalled
capital of a company which can be called only in the event of its winding-up. A limited
company may, by special resolution, determine that any portion of its share capital
which has not been called-up, shall be called up, except in the event of the company
being wound-up, such capital is known as Reserve Capital. It is available only for the
creditors on the winding-up of the company.

Debenture

Ms. Anjali Prava Mishra


Asst. Prof. (Finance and Accounting)
Debentures are popular means of raising funds by a company. A debenture is an
instrument of acknowledgement of debt under the common seal of a company. Terms of
the repayment of the principal sum and payment of interest are mentioned in the
debenture certificates which are issued to debenture holders. It is usual to prefix a
debenture with rate of interest that it carries. Suppose, debentures are issued carrying
interest @ 13 per cent, then such debentures will be known as 13 per cent debenture.
Types of Debentures
There are various types of debentures like redeemable, irredeemable/perpetual,
convertible, non-convertible, fully secured, partly secured, mortgage, unsecured, naked,
first mortgaged, second mortgaged, the bearer, fixed, floating rate, coupon rate, zero
coupon, secured premium notes, callable, puttable, etc.
The debenture classification is based on their tenure, redemption, mode of redemption,
convertibility, security, transferability, type of interest rate, coupon rate, etc. Ultimately,
a debenture is not like a standard product configured strictly. It is an agreement to be
agreed between the corporation and the debenture holders that decides the
characteristics of a debenture. Following are some examples of agreement templates for
ready reference and quick drafting.

SECURED (MORTGAGE) AND UNSECURED (NAKED) DEBENTURES


Debentures can be secured in nature, it may be unsecured in nature. A secured
debenture is secured by the charge on some asset or set of assets which is known as
secured or mortgage debenture and another when it is issued solely on the credibility of
the issuer is known as the naked or unsecured debenture. A trustee is appointed for
holding the secured asset which is quite obvious as the title cannot be assigned to each
and every debenture holder.
FIRST MORTGAGED AND SECOND MORTGAGED DEBENTURES
Secured / Mortgaged debentures are further classified into two types – first and second
mortgaged debentures. There is no restriction on issuing different types of debentures
provided there is clarity on claims of those debenture holders on the assets of the
company at the time of liquidation. First mortgaged debentures have the first charge
over the assets of the company whereas the second mortgage has the secondary charge
which means the realization of the assets will first fulfill the obligation of first
mortgage debentures and then will do for second ones.

Ms. Anjali Prava Mishra


Asst. Prof. (Finance and Accounting)
BEARER AND REGISTER DEBENTURE
From records point of view, debentures can be classified as registered debentures or
bearer debentures. Registered debentures are those in respect of which names,
addresses and particulars of holding of the debenture holders are registered by the
company. In this case, debentures can be transferred by executing a regular transfer
deed. Bearer debentures are those which are transferable by mere delivery. In this case,
the company does not keep any record of the debenture holders.
REDEEMABLE AND IRREDEEMABLE (PERPETUAL) DEBENTURES
Redeemable debentures carry a specific date of redemption on the certificate. The
company is legally bound to repay the principal amount to the debenture holders on
that date. On the other hand, irredeemable debentures, also known as perpetual
debentures, do not carry any date of redemption. This means that there is no specific
time of redemption of these debentures. They are redeemed either on the liquidation of
the company or as per the terms of the issue when the company chooses to pay them off
to reduce their liability by issues a due notice to the debenture holders beforehand.
CONVERTIBLE AND NON-CONVERTIBLE DEBENTURES
Convertible debenture holders have an option of converting their holdings into equity
shares. The rate of conversion and the period after which the conversion will take effect
are declared in the terms and conditions of the agreement of debentures at the time of
issue. On the contrary, non-convertible debentures are simple debentures with no such
option of getting converted into equity. Their state will always remain of debt and will
not become equity at any point in time.
It is essential to prepare an agreement that clearly expresses all the terms and
conditions.
FULLY AND PARTLY CONVERTIBLE DEBENTURES
Convertible Debentures are further classified into two – Fully and Partly Convertible.
Fully convertible debentures are completely converted into equity whereas the partly
convertible debentures have two parts. The convertible part is converted into equity as
per the agreed rate of exchange based on an agreement. The non-convertible part
becomes as good as redeemable debenture which is repaid after the expiry of the
agreed period.
Type of Interest Rates

Ms. Anjali Prava Mishra


Asst. Prof. (Finance and Accounting)
FIXED AND FLOATING RATE DEBENTURES
Fixed rate debentures have a fixed interest rate over the life of the debentures.
Contrarily, the floating rate debentures have the floating rate of interest which is
dependent on some benchmark rate say LIBOR (London Inter Bank Offer Rate), PLR
(Prime Lending Rate), etc.

Ms. Anjali Prava Mishra


Asst. Prof. (Finance and Accounting)

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