Debt Finance Flashcards
What is the balance sheet?
Records the assets, liabilities and capital of the company at a point in time.
What is an income statement / profit and loss account?
Records the income and expenses of the business over a particular period.
Which year-end adjustments should be made to the accounts?
- Prepayments
- Accruals
- Depreciation
- Bad Debts (business knows with certainty it will never receive money from a trade receivable, e.g debtor insolvent).
- Doubtful debts (business provision for risk that debt may not be paid, may be specific debtor or generally bad market).
How are partnership accounts different?
Profit Appropriation Statement:Must prepare a profit appropriation statement to record how the profits of the business are divided between partners.
Separate Capital: for each partner, have a capital account (represents long-term capital investment in business and cannot usually be withdrawn). Current account = drawings can be removed at their discretion.
Profits: distributed in accordance with partnership agreement.
What are the accounting requirements for a company?
Private co must file accounts at CH within 9 mths after end of ARD. Public co must file at CH within 6 months after end of ARD.
ARD = automatically last day of month on anniversary of incorporation but can be changed.
What is a loan facility?
Agreement between borrower and lender giving borrower right to borrow money.
What are the advantages and disadvantages of an overdraft?
- On-demand facility, bank can demand repayment at any time.
- Not suitable for long-term
- Interest paid on amount overdrawn
What are the advantages and disadvantages of an term loan?
- Lender can only demand repayment if borrower in default.
- Pay interest on loan throughout
- May be in single lump sum repayment (bullet) or instalments (amortisation).
What are the advantages and disadvantages of an RCF?
Borrower can repeatedly borrow and repay loans up to an agreed maximum + helps borrower keep interest down.
What is a debt security?
In return for finance provided by an investor, the company issues a piece of paper acknowledging the debt. This may be kept or sold on to another investor and whoever holds the debt security at the time of maturity is repaid the money by the company.
What are the different types of security?
- Pledge = borrower gives possession of asset to creditor until debt repaid (e.g pawn shop, strongest security as borrower cannot sell).
- Lien = lender retains possession of asset until debt repaid.
- Mortgage
- Charge
What is a charge?
Creates an equitable proprietary right in the asset in favour of the lender. Charging document also gives the lender contractual rights over the asset (e.g appoint receiver, sell or take possession). May be fixed or floating.
What is a fixed charge?
Taken over fixed assets (e.g machinery, vehicles, property) and creditor can control what borrower does with assets. Borrower cannot deal with asset without consent.
If charge becomes enforceable, creditor may appoint receiver / sell.
What is a floating charge?
Floats over non-fixed assets (e.g stock) and borrower is free to deal with assets as they please until charge crystallises (e.g by insolvency or event of default). Creditor will acquire control.
How must charges be registered?
To be enforceable, must be registered at Companies House within 21 days beginning with day after creation (Form MR01). If charge not registered within 21 days, it is void against the liquidator, administrator or creditor and the debt is immediately repayable.
Should keep record and have available for inspection.
