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Direction: Read the following text and answer the questions that follow:
Saksham Ltd., a firm manufacturing textiles, needs to finance its day-to-day expenses, like, wages, rent, maintain stock of raw material, etc. Other than this, the company also decides to set up a new plant at an estimated cost of ` 5 crores. The finance manager of the company, Mr. Ramakant was asked by the management to do the financial planning by identifying most suitable source of raising long-term funds for financing the investment decision and short-term sources for working capital decision. As per the suggestions of Mr. Ramakant, the company approached their raw material supplier to give them credit for three months, so that the company can get cloth for making garments without making immediate payment. For long-term investment, the company had issued equity and preference shares to meet its requirement. This decision resulted in payment of large amount of taxes to government as dividend on shares is not deducted from total income of the company before calculating income tax. But this situation could be avoided if company had chosen borrowed funds as a source of finance.
Q. State the source of finance which can give the benefit of tax saving.
- a)Equity Shares
- b)Debentures
- c)Both (a) and (b)
- d)Neither (a) nor (b)
Correct answer is option 'B'. Can you explain this answer?
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Direction: Read the following text and answer the questions that foll...
- Debentures are a debt instrument used by companies and government to issue the loan.
- Debentures are also known as a bond which serves as an IOU between issuers and purchaser.
- Companies use debentures when they need to borrow the money at a fixed rate of interest for its expansion.
Most Upvoted Answer
Direction: Read the following text and answer the questions that foll...
Understanding Tax Benefits in Financing
When a company opts for different sources of finance, the tax implications can significantly impact its overall financial health. In the scenario provided, the choice between equity shares and debentures reveals crucial differences in tax treatment.
Sources of Finance Explained
- Equity Shares:
- Equity financing involves issuing shares to investors, who in return receive dividends.
- Tax Implication: Dividends paid to shareholders are not tax-deductible. This means that companies pay taxes on their profits before distributing dividends, leading to double taxation.
- Debentures:
- Debentures are a type of long-term debt instrument that companies can issue to raise funds.
- Tax Implication: Interest paid on debentures is tax-deductible. This means that the company can deduct the interest expenses from its taxable income before calculating income tax, effectively reducing the overall tax liability.
Conclusion: The Benefit of Debentures
Given the analysis above, the correct answer to the question regarding the source of finance that can provide tax savings is:
- Debentures: They allow companies to reduce their taxable income through interest deductions.
- This results in lower tax payments compared to equity financing, where dividends are paid from after-tax profits.
By choosing debentures over equity shares, Saksham Ltd. could have minimized its tax burden while raising the necessary funds for its long-term investments. Thus, option "B" is the correct answer, as it highlights the financial advantage of using borrowed funds for tax efficiency.
When a company opts for different sources of finance, the tax implications can significantly impact its overall financial health. In the scenario provided, the choice between equity shares and debentures reveals crucial differences in tax treatment.
Sources of Finance Explained
- Equity Shares:
- Equity financing involves issuing shares to investors, who in return receive dividends.
- Tax Implication: Dividends paid to shareholders are not tax-deductible. This means that companies pay taxes on their profits before distributing dividends, leading to double taxation.
- Debentures:
- Debentures are a type of long-term debt instrument that companies can issue to raise funds.
- Tax Implication: Interest paid on debentures is tax-deductible. This means that the company can deduct the interest expenses from its taxable income before calculating income tax, effectively reducing the overall tax liability.
Conclusion: The Benefit of Debentures
Given the analysis above, the correct answer to the question regarding the source of finance that can provide tax savings is:
- Debentures: They allow companies to reduce their taxable income through interest deductions.
- This results in lower tax payments compared to equity financing, where dividends are paid from after-tax profits.
By choosing debentures over equity shares, Saksham Ltd. could have minimized its tax burden while raising the necessary funds for its long-term investments. Thus, option "B" is the correct answer, as it highlights the financial advantage of using borrowed funds for tax efficiency.
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Direction: Read the following text and answer the questions that follow:Saksham Ltd., a firm manufacturing textiles, needs to finance its day-to-day expenses, like, wages, rent, maintain stock of raw material, etc. Other than this, the company also decides to set up a new plant at an estimated cost of ` 5 crores. The finance manager of the company, Mr. Ramakant was asked by the management to do the financial planning by identifying most suitable source of raising long-term funds for financing the investment decision and short-term sources for working capital decision. As per the suggestions of Mr. Ramakant, the company approached their raw material supplier to give them credit for three months, so that the company can get cloth for making garments without making immediate payment. For long-term investment, the company had issued equity and preference shares to meet its requirement. This decision resulted in payment of large amount of taxes to government as dividend on shares is not deducted from total income of the company before calculating income tax. But this situation could be avoided if company had chosen borrowed funds as a source of finance.Q. State the source of finance which can give the benefit of tax saving. a)Equity Sharesb)Debenturesc)Both (a) and (b)d)Neither (a) nor (b)Correct answer is option 'B'. Can you explain this answer?
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Direction: Read the following text and answer the questions that follow:Saksham Ltd., a firm manufacturing textiles, needs to finance its day-to-day expenses, like, wages, rent, maintain stock of raw material, etc. Other than this, the company also decides to set up a new plant at an estimated cost of ` 5 crores. The finance manager of the company, Mr. Ramakant was asked by the management to do the financial planning by identifying most suitable source of raising long-term funds for financing the investment decision and short-term sources for working capital decision. As per the suggestions of Mr. Ramakant, the company approached their raw material supplier to give them credit for three months, so that the company can get cloth for making garments without making immediate payment. For long-term investment, the company had issued equity and preference shares to meet its requirement. This decision resulted in payment of large amount of taxes to government as dividend on shares is not deducted from total income of the company before calculating income tax. But this situation could be avoided if company had chosen borrowed funds as a source of finance.Q. State the source of finance which can give the benefit of tax saving. a)Equity Sharesb)Debenturesc)Both (a) and (b)d)Neither (a) nor (b)Correct answer is option 'B'. Can you explain this answer? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Direction: Read the following text and answer the questions that follow:Saksham Ltd., a firm manufacturing textiles, needs to finance its day-to-day expenses, like, wages, rent, maintain stock of raw material, etc. Other than this, the company also decides to set up a new plant at an estimated cost of ` 5 crores. The finance manager of the company, Mr. Ramakant was asked by the management to do the financial planning by identifying most suitable source of raising long-term funds for financing the investment decision and short-term sources for working capital decision. As per the suggestions of Mr. Ramakant, the company approached their raw material supplier to give them credit for three months, so that the company can get cloth for making garments without making immediate payment. For long-term investment, the company had issued equity and preference shares to meet its requirement. This decision resulted in payment of large amount of taxes to government as dividend on shares is not deducted from total income of the company before calculating income tax. But this situation could be avoided if company had chosen borrowed funds as a source of finance.Q. State the source of finance which can give the benefit of tax saving. a)Equity Sharesb)Debenturesc)Both (a) and (b)d)Neither (a) nor (b)Correct answer is option 'B'. Can you explain this answer? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Direction: Read the following text and answer the questions that follow:Saksham Ltd., a firm manufacturing textiles, needs to finance its day-to-day expenses, like, wages, rent, maintain stock of raw material, etc. Other than this, the company also decides to set up a new plant at an estimated cost of ` 5 crores. The finance manager of the company, Mr. Ramakant was asked by the management to do the financial planning by identifying most suitable source of raising long-term funds for financing the investment decision and short-term sources for working capital decision. As per the suggestions of Mr. Ramakant, the company approached their raw material supplier to give them credit for three months, so that the company can get cloth for making garments without making immediate payment. For long-term investment, the company had issued equity and preference shares to meet its requirement. This decision resulted in payment of large amount of taxes to government as dividend on shares is not deducted from total income of the company before calculating income tax. But this situation could be avoided if company had chosen borrowed funds as a source of finance.Q. State the source of finance which can give the benefit of tax saving. a)Equity Sharesb)Debenturesc)Both (a) and (b)d)Neither (a) nor (b)Correct answer is option 'B'. Can you explain this answer?.
Direction: Read the following text and answer the questions that follow:Saksham Ltd., a firm manufacturing textiles, needs to finance its day-to-day expenses, like, wages, rent, maintain stock of raw material, etc. Other than this, the company also decides to set up a new plant at an estimated cost of ` 5 crores. The finance manager of the company, Mr. Ramakant was asked by the management to do the financial planning by identifying most suitable source of raising long-term funds for financing the investment decision and short-term sources for working capital decision. As per the suggestions of Mr. Ramakant, the company approached their raw material supplier to give them credit for three months, so that the company can get cloth for making garments without making immediate payment. For long-term investment, the company had issued equity and preference shares to meet its requirement. This decision resulted in payment of large amount of taxes to government as dividend on shares is not deducted from total income of the company before calculating income tax. But this situation could be avoided if company had chosen borrowed funds as a source of finance.Q. State the source of finance which can give the benefit of tax saving. a)Equity Sharesb)Debenturesc)Both (a) and (b)d)Neither (a) nor (b)Correct answer is option 'B'. Can you explain this answer? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Direction: Read the following text and answer the questions that follow:Saksham Ltd., a firm manufacturing textiles, needs to finance its day-to-day expenses, like, wages, rent, maintain stock of raw material, etc. Other than this, the company also decides to set up a new plant at an estimated cost of ` 5 crores. The finance manager of the company, Mr. Ramakant was asked by the management to do the financial planning by identifying most suitable source of raising long-term funds for financing the investment decision and short-term sources for working capital decision. As per the suggestions of Mr. Ramakant, the company approached their raw material supplier to give them credit for three months, so that the company can get cloth for making garments without making immediate payment. For long-term investment, the company had issued equity and preference shares to meet its requirement. This decision resulted in payment of large amount of taxes to government as dividend on shares is not deducted from total income of the company before calculating income tax. But this situation could be avoided if company had chosen borrowed funds as a source of finance.Q. State the source of finance which can give the benefit of tax saving. a)Equity Sharesb)Debenturesc)Both (a) and (b)d)Neither (a) nor (b)Correct answer is option 'B'. Can you explain this answer? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Direction: Read the following text and answer the questions that follow:Saksham Ltd., a firm manufacturing textiles, needs to finance its day-to-day expenses, like, wages, rent, maintain stock of raw material, etc. Other than this, the company also decides to set up a new plant at an estimated cost of ` 5 crores. The finance manager of the company, Mr. Ramakant was asked by the management to do the financial planning by identifying most suitable source of raising long-term funds for financing the investment decision and short-term sources for working capital decision. As per the suggestions of Mr. Ramakant, the company approached their raw material supplier to give them credit for three months, so that the company can get cloth for making garments without making immediate payment. For long-term investment, the company had issued equity and preference shares to meet its requirement. This decision resulted in payment of large amount of taxes to government as dividend on shares is not deducted from total income of the company before calculating income tax. But this situation could be avoided if company had chosen borrowed funds as a source of finance.Q. State the source of finance which can give the benefit of tax saving. a)Equity Sharesb)Debenturesc)Both (a) and (b)d)Neither (a) nor (b)Correct answer is option 'B'. Can you explain this answer?.
Solutions for Direction: Read the following text and answer the questions that follow:Saksham Ltd., a firm manufacturing textiles, needs to finance its day-to-day expenses, like, wages, rent, maintain stock of raw material, etc. Other than this, the company also decides to set up a new plant at an estimated cost of ` 5 crores. The finance manager of the company, Mr. Ramakant was asked by the management to do the financial planning by identifying most suitable source of raising long-term funds for financing the investment decision and short-term sources for working capital decision. As per the suggestions of Mr. Ramakant, the company approached their raw material supplier to give them credit for three months, so that the company can get cloth for making garments without making immediate payment. For long-term investment, the company had issued equity and preference shares to meet its requirement. This decision resulted in payment of large amount of taxes to government as dividend on shares is not deducted from total income of the company before calculating income tax. But this situation could be avoided if company had chosen borrowed funds as a source of finance.Q. State the source of finance which can give the benefit of tax saving. a)Equity Sharesb)Debenturesc)Both (a) and (b)d)Neither (a) nor (b)Correct answer is option 'B'. Can you explain this answer? in English & in Hindi are available as part of our courses for Commerce.
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Here you can find the meaning of Direction: Read the following text and answer the questions that follow:Saksham Ltd., a firm manufacturing textiles, needs to finance its day-to-day expenses, like, wages, rent, maintain stock of raw material, etc. Other than this, the company also decides to set up a new plant at an estimated cost of ` 5 crores. The finance manager of the company, Mr. Ramakant was asked by the management to do the financial planning by identifying most suitable source of raising long-term funds for financing the investment decision and short-term sources for working capital decision. As per the suggestions of Mr. Ramakant, the company approached their raw material supplier to give them credit for three months, so that the company can get cloth for making garments without making immediate payment. For long-term investment, the company had issued equity and preference shares to meet its requirement. This decision resulted in payment of large amount of taxes to government as dividend on shares is not deducted from total income of the company before calculating income tax. But this situation could be avoided if company had chosen borrowed funds as a source of finance.Q. State the source of finance which can give the benefit of tax saving. a)Equity Sharesb)Debenturesc)Both (a) and (b)d)Neither (a) nor (b)Correct answer is option 'B'. Can you explain this answer? defined & explained in the simplest way possible. Besides giving the explanation of
Direction: Read the following text and answer the questions that follow:Saksham Ltd., a firm manufacturing textiles, needs to finance its day-to-day expenses, like, wages, rent, maintain stock of raw material, etc. Other than this, the company also decides to set up a new plant at an estimated cost of ` 5 crores. The finance manager of the company, Mr. Ramakant was asked by the management to do the financial planning by identifying most suitable source of raising long-term funds for financing the investment decision and short-term sources for working capital decision. As per the suggestions of Mr. Ramakant, the company approached their raw material supplier to give them credit for three months, so that the company can get cloth for making garments without making immediate payment. For long-term investment, the company had issued equity and preference shares to meet its requirement. This decision resulted in payment of large amount of taxes to government as dividend on shares is not deducted from total income of the company before calculating income tax. But this situation could be avoided if company had chosen borrowed funds as a source of finance.Q. State the source of finance which can give the benefit of tax saving. a)Equity Sharesb)Debenturesc)Both (a) and (b)d)Neither (a) nor (b)Correct answer is option 'B'. Can you explain this answer?, a detailed solution for Direction: Read the following text and answer the questions that follow:Saksham Ltd., a firm manufacturing textiles, needs to finance its day-to-day expenses, like, wages, rent, maintain stock of raw material, etc. Other than this, the company also decides to set up a new plant at an estimated cost of ` 5 crores. The finance manager of the company, Mr. Ramakant was asked by the management to do the financial planning by identifying most suitable source of raising long-term funds for financing the investment decision and short-term sources for working capital decision. As per the suggestions of Mr. Ramakant, the company approached their raw material supplier to give them credit for three months, so that the company can get cloth for making garments without making immediate payment. For long-term investment, the company had issued equity and preference shares to meet its requirement. This decision resulted in payment of large amount of taxes to government as dividend on shares is not deducted from total income of the company before calculating income tax. But this situation could be avoided if company had chosen borrowed funds as a source of finance.Q. State the source of finance which can give the benefit of tax saving. a)Equity Sharesb)Debenturesc)Both (a) and (b)d)Neither (a) nor (b)Correct answer is option 'B'. Can you explain this answer? has been provided alongside types of Direction: Read the following text and answer the questions that follow:Saksham Ltd., a firm manufacturing textiles, needs to finance its day-to-day expenses, like, wages, rent, maintain stock of raw material, etc. Other than this, the company also decides to set up a new plant at an estimated cost of ` 5 crores. The finance manager of the company, Mr. Ramakant was asked by the management to do the financial planning by identifying most suitable source of raising long-term funds for financing the investment decision and short-term sources for working capital decision. As per the suggestions of Mr. Ramakant, the company approached their raw material supplier to give them credit for three months, so that the company can get cloth for making garments without making immediate payment. For long-term investment, the company had issued equity and preference shares to meet its requirement. This decision resulted in payment of large amount of taxes to government as dividend on shares is not deducted from total income of the company before calculating income tax. But this situation could be avoided if company had chosen borrowed funds as a source of finance.Q. State the source of finance which can give the benefit of tax saving. a)Equity Sharesb)Debenturesc)Both (a) and (b)d)Neither (a) nor (b)Correct answer is option 'B'. Can you explain this answer? theory, EduRev gives you an
ample number of questions to practice Direction: Read the following text and answer the questions that follow:Saksham Ltd., a firm manufacturing textiles, needs to finance its day-to-day expenses, like, wages, rent, maintain stock of raw material, etc. Other than this, the company also decides to set up a new plant at an estimated cost of ` 5 crores. The finance manager of the company, Mr. Ramakant was asked by the management to do the financial planning by identifying most suitable source of raising long-term funds for financing the investment decision and short-term sources for working capital decision. As per the suggestions of Mr. Ramakant, the company approached their raw material supplier to give them credit for three months, so that the company can get cloth for making garments without making immediate payment. For long-term investment, the company had issued equity and preference shares to meet its requirement. This decision resulted in payment of large amount of taxes to government as dividend on shares is not deducted from total income of the company before calculating income tax. But this situation could be avoided if company had chosen borrowed funds as a source of finance.Q. State the source of finance which can give the benefit of tax saving. a)Equity Sharesb)Debenturesc)Both (a) and (b)d)Neither (a) nor (b)Correct answer is option 'B'. Can you explain this answer? tests, examples and also practice Commerce tests.
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