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Which one of the following statement is TRUE about Public deposits?
  • a)
    Public deposit cannot exceed 25% of share capital and reserves
  • b)
    Rate of interest offered on public deposits is lower than the rate of interest on bank deposits
  • c)
    Public deposit are issued for a period of 6 months to 5 years
  • d)
    It is one of the reliable sources of finance
Correct answer is option 'A'. Can you explain this answer?
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Which one of the following statement is TRUE about Public deposits?a)P...
Public Deposits

Public deposits are a type of unsecured borrowing from the public by a company or a financial institution. It is a reliable source of finance for companies to meet their short-term working capital requirements. Let's understand the true statement about public deposits.

True Statement about Public Deposits

Public deposit cannot exceed 25% of share capital and reserves.

Explanation

As per the provisions of the Companies Act, 2013, a company cannot accept public deposits exceeding 25% of its aggregate of paid-up share capital and free reserves. This provision is to protect the interest of the public and ensure the safety of their money. If a company violates this provision, it will attract penalties and fines.

Other Statements

Let's also understand the other statements mentioned in the question.

- Rate of interest offered on public deposits is lower than the rate of interest on bank deposits: This statement is not entirely true. The rate of interest on public deposits may vary from company to company and also depends on the tenure of the deposit. Some companies may offer a higher rate of interest than bank deposits to attract investors.
- Public deposits are issued for a period of 6 months to 5 years: This statement is generally true. Public deposits are issued for a specific tenure ranging from 6 months to 5 years. The investor can choose the tenure as per their preference.
- It is one of the reliable sources of finance: This statement is also true. Public deposits are one of the reliable sources of finance for companies to meet their short-term working capital requirements. It is an unsecured borrowing, which means the company does not have to provide any collateral. The interest rate is also fixed, which helps the company to plan their finances better.

Conclusion

In conclusion, the true statement about public deposits is that it cannot exceed 25% of share capital and reserves. Public deposits are a reliable source of finance for companies, and the rate of interest may vary from company to company. The tenure of public deposits ranges from 6 months to 5 years, and it is an unsecured borrowing.
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Which one of the following statement is TRUE about Public deposits?a)Public deposit cannot exceed 25% of share capital and reservesb)Rate of interest offered on public deposits is lower than the rate of interest on bank depositsc)Public deposit are issued for a period of 6 months to 5 yearsd)It is one of the reliable sources of financeCorrect answer is option 'A'. Can you explain this answer?
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