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FINANCING ANY ENTERPRISE

1. Methods of Financing
a) Equity Capital owned
b) Borrowed or Debt capital
2. Working Capital
a) Initial Working Capital
b) Regular Working Capital
3. Types of Business Organizations

II.
-

Attached coupons indicating the


interest due and the date of the
interest to be paid
According to Security behind the
bonds
1. Mortgage Bonds
Can be transferred to bondholders
for reimbursement
2. Collateral Trust Bonds
3. Equipment Obligation Bonds
4. Debenture Bonds
5. Joint Bonds

VALUE OF A BOND
- the present worth of all the amounts the
bondholder will receive through his
possession of the bond
Types of Payment:

Dangers of a Corporation
1. Dishonesty of Promoters
2. Dishonesty of Management
3. Watering of Stock
4. Absentee Ownership
Types of Stocks:
1. Common Stock
- Exercise control by electing board
of directors and voting corporate
policy
2. Preferred Stock
- Class of ownership in a corporation
that has a higher claim on assets
and earnings
Dividends
-

a portion of a companys earnings


Cash, stock or property

BONDS

DEPRECIATION and DEPLETION


Depreciation
-

Decrease in value of a property


Included in the cost of production
of any product or service. Why?
o To provide a replacement for
the equipment
o To provide for the
maintenance of capital

Types of Depreciation:
1. Physical Depreciation
2. Functional Depreciation
Depreciation Cost

Classifications:
I.

1. Single Payment
received at the date of maturity
o Final payment date of a loan
- Usually equal to the par value of
the bond
o Nominal value/face value of
a bond
2. Periodic Payment

According to method of paying


interest
1. Registered Bonds
Interest is paid periodically to the
owners without asking for it.
2. Coupon Bonds

Physical Life of an Equipment


o Length of capability of
performing the function
Economic Life
o Length of time at which it
can operate at satisfactory
profit
First Cost
o Original purchase price

Amount to be recovered
o Depreciation cost, FC SC or
FC SV
Salvage Value
o Second hand value
Scrap or Junk Value
o Amount to be sold for when
disposed off as junk

COMPOSITE DEPRECIATION

DEPLETION
-

Methods used to allocate the costs


of extracting natural resources.

Methods:
1. Factor Method
Depletion cost during any Year

Determination of Depreciation Cost


1.
2.
3.
4.

Straight line formula


Sinking Fund Formula
Matheson formula
Sum of the Years-Digits Method (SYD
Method)
5. Service-Output or Production-Units
Method
6. Straight line plus average interest
formula
7. Double-Rate Declining-Balance Method
8. Operation day Method
9. Retirement Method
10.
Annual Inventory method

ITEM DEPRECIATION
GROUP DEPRECIATION

= Initial Cost of the property (Units Sold


during the year)
Total Units in Property
2. Percentage or Depletion Allowance
Method
- Allows a fix percentage of gross
income received during the year to
be the depletion charge.
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