The Long Term Funding Of The Business- Revision Sheet 5

Question 1

What are all the long term sources of funding available to a limited company?

Answer 1

• ordinary shares
• preference shares
• class ordinary shares
• debenture
• long term loans from banks/other sources

Question 2

What are the features of each item of long term finance?

-ordinary shares

Answer 2

• a share is the interest of a shareholder in a company measured by a sum of money. A bundle of rights and obligations.
• a shareholder is a member of the company- has voting rights depending on shares held
• dividends depend on the availability of profits

Question 3

What are the features of each item of long term finance?

- preference shares

Answer 3

• paid a fixed % dividends usually cumulative
• no voting rights
• preference in relation to dividends
• preference in a liquidation
• half way between shares and debentures

Question 4

What are the features of each item of long term finance?
- class ordinary shares

Answer 4

• shares issued with special rights attached to that class of shares
• the rights will be specified in the activity

Question 5

What are the features of each item of long term finance?

- debentures

Answer 5

• a debenture is a document issued by a company containing an acknowledgement of its indebtedness
• a debenture is a creditor of the company and has no voting rights
• a debenture has priority with respect to repayment if secured on assets
• capital does not need to be maintained

Question 6

What are the features of each item of long term finance?

- long term loans from banks/other sources

Answer 6

• as for debenture but loan agreement instead of debenture

Question 7

How is each long term source of funding paid a return?

Answer 7

1. Ordinary shares= dividends but not out of capital
2. Preference shares= fixed % dividend, cumulative but nit out of control
3. Class ordinary= dividends for ordinary if there is a right to dividends in articles
4. Debentures= interest at %. Paid even if takes company into negative retained earnings
5. Long term loans from banks/other sources= as foe debentures

Question 8

What order would each be paid in a liquidation

Answer 8

1. Debentures + long term loans
2. Preference shares
3. Ordinary shares

• class ordinary rights= depends on rights

Question 9

What is meant by maintaining capital?

Answer 9

• means not causing the retainer earnings to become negative
• if this happens then the equity will be less than the share capital, and capital has nit been maintained

Question 10

If a company needs to raise capital/funds the following methods are available…

Answer 10

1. Issue more ordinary shares
2. Issue another class of ordinary shares
3. Issue preference shares
4. Issue debentures
5. Borrow from bank