Business and governance part- (25)

Business and governance part- (25) - payout as part of...

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155 payout as part of their agreement. The companies have to adhere to such limits. In any case, the Company Law has provided certain rules to be followed while deciding on the amount to be distributed as dividend. For example, capital profits are not to be used for distribution of dividend normally; a banking company has to transfer certain percentage of profit to a statutory reserve which is not available for payment of dividend, and so on. 3. The balance sheet of AB Ltd., as on March 31, 2008 is as follows; Liabilities Amount Assets Amount 6,000 equity shares of Rs.10 each 60,000 Fixed assets 1,00,000 Reserves & surplus 40,000 Current assets 80,000 8% Debentures 50,000 Current liabilities 30,000 ————— ————— 1,80,000 1,80,000 ————— ————— The earnings of the company from the year 2007-08 were Rs. 18,000 while the normal rate of earnings on capital employed in similar companies is 15%. Compute (a) its proper or fair capitalisation as justified by the company’s earnings, and (b) state whether it is over-capitalised or under-capitalised.
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  • Spring '14
  • DeborahDubin
  • Finance, Balance Sheet, Generally Accepted Accounting Principles, Weighted average cost of capital, optimum capital structure

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