HA2032: Corporate and Financial Accounting - Fund Sources Report

This report provides a comprehensive analysis of corporate and financial accounting, specifically focusing on the various sources of funds available to companies. It begins by discussing different types of funding, including long-term, medium-term, and short-term sources, as well as the classification based on ownership (owner's capital and borrowed funds) and source (internal and external). The report then delves into the owner's equity section of financial statements, examining components such as retained earnings, contributed capital, issued capital, treasury shares, and reserves. A key part of the report involves a comparative analysis of two Australian companies, Dexus Limited and Ramsay Health Care, identifying their sources of funds and the movement in these sources. The report also addresses the advantages and disadvantages of different funding sources, offering valuable insights into financial management. The analysis includes the examination of liabilities like public deposits, bank borrowings, and deferred tax liabilities. The conclusion summarizes the key findings and emphasizes the importance of understanding fund sources for business success.

Running Head: CORPORATE AND FINANCIAL ACCOUNTING
Corporate and financial accounting
Name of the Student:
Name of the University:
Author note:

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CORPORATE AND FINANCIAL ACCOUNTING
Abstract
In this report it is discussed about source of fund that a company can use in its
business. Then it is discussed about advantages and disadvantage of different sources.
Then an analysis of two Australian company has been done identifying their source of
fund.

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Table of Contents
Introduction........................................................................................................................3
Types.................................................................................................................................3
Part A.................................................................................................................................6
Part B...............................................................................................................................11
Conclusion.......................................................................................................................12
Reference list...................................................................................................................13

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Introduction
Business need to produce goods and services that can satisfy the customers
wants. To carry on this activities companies require fund or money. Without adequate
fund a company cannot can run for a long period of time. There are different sources of
fund which are available in the market like equity, venture funding, capital loan,
debenture, loans, and other different sources. Need of fund arises from the first day of
the business (Wang, Dou and Jia 2016). Before borrowing a business must considers
the amount needed, when needed and the purpose of the borrowing. Different source of
fund is used in different situation. Source of fund is very important for a new start up
business. But before considering different sources of fund a new start-up business must
consider how much money is needed and when needed. These sources of fund are
classified into time period, source of generation and control of ownership.
Types
A business cannot run without money or function properly. Throughout the life of
a business funds play an important part as it is required continuously. Source of fund
are classified on the following basis:
1. On the basis of time period – Under this basis source of fund is classified into
three parts
 Long term sources – Business organization usually run for a long period of
time for which it requires a permanent source to finance it for a long term
(Mokhtar and Mellett 2013). Main advantage of this fund is that it is not to
be paid immediately. Business usually repay this type of borrowing after

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many years. This types of funds should be carefully analysed before
selecting as all of these funds are unique in characteristic. This funds are
usually for a periods of more than five years. This fund is used to
purchase capital assets or fixed assets which will stay in the business for
a long period. This source includes funds like equity shares, preference
share, term loans and debenture (Amel-Zadeh and Zhang 2014).
 Medium term source – This sources of fund is raised for a period between
one to five year and not more than five year. This fund are mainly required
for modernising and repairing of machinery. There are many medium
sources of borrowing and bank is the major source of medium term fund.
Commercial bank being the important source of fund generally gives loan
by mortgaging assets. This source of fund includes loan from bank,
borrowing from financial institution and public deposits.
 Short term sources – This is a short term financing that is raised when
short period money is required which is within a year. There are rigid rule
in this system where time period may exceed one year but it will be called
as short term finance. This type of fund is raised to maintain necessary
day to day activities like raw materials, spare parts, etc. It is not used for
working capital requirements. Main feature of short term finance is to raise
fund and pay it in short period. Some of the short term finance are like
trade credit, consumer credit, instalment credit, bank credit and other
sources (Bushman 2014).

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2. On the basis of ownership – Under this basis source of fund is classified into the
followings
 Owner’s capital – Owner’s capital is also known as owner’s equity which
shows owners funds in the business. It shows the amount of company
asset owned by the owner instead of creditors. It represents the net asset
of the company or the amount left after disposing of all assets and paying
off all its creditor. The formula for calculating owner’s capital is equal to
beginning balance minus withdrawn plus contribution and net income or
minus of net loss for a period. It also includes retained earning which is
kept aside from the profit (Cheng, Ioannou and Serafeim 2014).
 Borrowed fund – This fund includes borrowing and loans which are
available for a specific period with certain condition. This are risky sources
of fund as it involves payment of interest and mortgaging of asset. It is the
most common type of fund which is readily available for the business. It
includes funds like debenture, loan from bank, pubic deposit and leasing.
3. On the basis of source – Under this source of fund are generated from internal
and external source of fund which are as flows
 Internal source – This are the internally generated finance like retained
profit, increasing profit, increasing sale, sale of assets or any interest
received. Finance is the continuous requirement of every business growth.
While there are many source of fund available in the market but manager
has to choose fund after knowing all pros and cons of each fund. So the

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risk free option is the internal source of fund as it is generated in the
normal course of business operation (Jo, Kim and Park 2015).
 External source – This funds are those which are available from outside of
a business like loan from bank, public deposits, debenture, commercial
papers and other sources. This type of sources provide money during
huge requirement. It is costlier then internal sources of fund as they have
to mortgage asset and pay high rate interest (Duff 2016).
Part A
Two Australian stock exchange companies whose annual report are analysed is
Dexus limited and Ramsay health care.
(1) Companies asset that are claimed to be the owners and shareholders portion
are known as owner’s equity. It is calculated by deducting all liabilities from all
assets. When the value of owners’ equity increases the value of capital
contribution also increases. Owner can also reduce the value of equity by
withdrawing amount. While negative owner’s equity represents the excess of
liability then assets (Peters and Romi 2014).
The components that are recorded in the owner’s equity section of both the
companies are as follows:
 Retained earnings – It is an amount which is transferred directly to the
balance sheet out of the profit without paying off the dividends. It
consist of the amount from net income and return on equity. This is the
part of the profit which keep on increasing over time and creating a
reserve fund.

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 Contributed capital – This is also known as paid-up capital which is the
amount paid by the shareholders to buy a company stock. It is shown
in the equity side of the balance sheet. Paid up capital is recorded by
the corporation when the shares are sold directly to the investors. The
total amount of equity recorded in the organization is shown
separately. Recording capital contribution fulfil the accounting
requirement by providing additional information (Hoi, Wu and Zhang
2013).
 Issued capital – It refers to the number of shares that are issued by the
company to the shareholders. It forms that part of the authorized
capital which a company is authorized to sell. A company can sell its
all share or just a portion of it which is also known as subscribed
capital. Purchasing of share represents the amount of money invested
by the shareholders to become the part of the business.
 Treasure shares – This are those shares which are brought back by
the company to reduce the liability in the market. This are legally
authorized to issue capital. This shares are the part of float and
outstanding shares which is brought back by the company. It is brought
back to cancel or reissue. The amount of treasure capital should not
exceed the maximize portion of the total capital.
 Reserves – This are also the part of a retained earning which
strengthens the business financial position. Reserves are used to

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purchase fixed asset, fund expansion, bonus payments or dividend
payment (Hřebíček et al.,2014).
(2) Owner’s equity are recorded in the financial statement for every accounting
period. The value of equity represents the net amount of owners capital
contributed towards the business. It also consist of the amount withdrawn
from the capital account. Like Decxus limited withdrawn $250 million from a
national bank. Its cost is calculated at the fair value on the date of withdrawn.
Eligible shares acquiring fully paid shares earns net profit after tax. Holders of
ordinary shares are entitled to receive dividend with the declaration of one
vote per share. Retained earnings consist of profit created internally. Reserve
is created from undistributed profit for paying dividend. Ramsay health limited
has withdrawn $500 million as loan to finance its different departments. Items
that are recoded. Ramcay limited consist of public borrowing and public
deposits which are shown in the liability side of the balance sheet. It is shown
at the fair value in income statement. Liability of the financial system recorded
the non-current borrowing, provisions and other liabilities (Cooper and
Morgan 2013).
(3) There are various types of fund in the market out of which public deposit or
bank borrowing is the important one. To use borrowed money company has
to provide mortgage of their assets along with high rate of interest. Whereas
public deposit has some advantages like low rate of interest and low
administrative expenses.

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Deferred tax liability is the no-paid amount for the current period which is
assessed by the company. It record the income tax to be paid in advance
which represents the future tax payment. Deferred tax represents the tax
amount to be paid in future. Insurance liability are the part of the general
insurance system (Baños-Caballero, García-Teruel and Martínez-Solano
2014). It protect the purchaser’s from the risk of liability. Its main objective is
to raise fund is to provide protection which will allow the user to repay the
loan amount. It contains mortgage, lease and borrowing funds. It consist of
valid documents which consist of value of dogs and services. Bills payable is
a type of invoice received from the seller keeps as business record on the
liability side of the balance sheet (Watson 2015).
(4) Liabilities of $200 million are included in the financial statement whereas the
bank has tax contribution of $200 million. Amount received in the bank is
more than $300 million. Liability are calculated by using the both asset and
liability values which is realized using tax rate. Public deposit includes both
long term and short term deposits. Deposits are measured at fair value which
is attributed to the transaction cost. Liability are settled after a year and paid
with the interest due with it. Debt includes both long term and short term
consisting of commercial papers, bank loans and loan from other financial
institution. Debts are measured at fair value after amortizing it including both
premium and discounts. Provisions are effective when they are detailed
planned and executed which is going to be used within a year. Bills payable
are also in short term nature.

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(5) For development every business need capital support which is the key
success tip for growth, innovation and long term success. To know the
advantage and disadvantage of every source of fund understanding every
area of the funds are required (Duff 2016). Using external source of fund
helps the business to expand their expenses on a wide business areas. They
can use their internal fund or saving for any other purpose. So advantage of
source of fund are as follows:
 Bank don’t influence on how the money will be spent and they never
interfere how the business will spent their money. They are like a silent
partner who just put their money on a business.
 It is easy and convenient to get business loan from bank. Even it is
easy to access according to the needs of the business.
 Interest on business loan are mostly low or reasonable. It is kept at
reasonable rate so that a business can get a healthy return.
Government also gives subsidies on the interest paid by the company.
 Loans are taken by the business to expand or to earn more profit.
When a company earn profit it stays with the business only as bank will
take fixed amount.
 There is no restriction of using this fund.
 It speed up the growth of the business (Lippert 2015).
And disadvantage of source of fund are as follows:
 High rate of interest is charged, legal expenses are included and
service charge is also applicable.

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 It is costlier than the owned capital as the interest charged on
borrowed fund is always high.
 Business has to get qualified to get loan as there is different rules and
regulation to get approval. Different financial institution has different
rules and condition. So to get fund business need to first meet their
conditions.
 To get business loan there is need of mortgaging asset which is a risky
situation. If the business fails to repay the borrowed capital then the
bank may seize the asset.
 As per the request business don’t get the full amount. If all condition of
bank fulfils then only bank approves the whole amount. Approved
amount also depend on the bank to bank and size of the business
(Glover 2014).
Part B
Proprietary company are those company which cannot issue shares to the public.
This are private company which has separate legal entity and own taxability. They sale
shares to a limited number of shareholders which can be maximum of 50 an in
partnership firm it is limited to 20 shareholders. Proprietary company is divided into two
types which are small and large proprietary company. So a company is considered to
be a small company if it fulfil the two condition out of the three follows:
 Gross operating profit is less than $10 million in a year.
 Value of assets is less than $5 million a year.
 Number of employees is less than 50.

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Small proprietary company has the benefit of tax saving and flexible to run the business.
This companies are also not required to audit their financial statement (Abbadi, Hijazi
and Al-Rahahleh 2016).
While the large proprietary company is required to audit their financial statement. A
company to become a large proprietary company need to fulfil two condition out of the
three as follows:
 Gross revenue is more than $50 million.
 Asset value is more than $25 million,
 Number of employees is more than or equal to 100.
Conclusion
Different sources of funds are available in the market which makes it tough to
choose the right source of fund or at the right time. While selecting the best fund it is
required to have an in-depth knowledge of different sources of fund. Without fund a
company won’t survive in the market for a long period of time. So business need to
borrow fund after considering the right amount needed, when needed and the best
source to get fund.

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