Applications of funds, Cost Accounting

Requirement for additional Funds

A business would require additional capital for two purposes:

1. Financing additional fixed assets, and                                                               

2. Financing additional working capital.

This should not be tough to appreciate the need for having adequate fixed facilities along with that to conduct the business. The amount we have invested into the shop,  furniture  and  fixtures  here as refer  to  the  illustration of  Ramsons, has  created  the facilities for carrying on the business. This also limits the capacity. We cannot expand our business beyond a specific capacity that is restricted by the facilities created by fixed assets. Whether case of a manufacturing firm, this will be plant ability; in case of a transport undertaking this may be tonnage of trucks, wagons or ships; in case of demonstrate business is and airlines this may be seating capacity rapidly. Any raise in such capacity would needs additional investment.

 Hence, investment in fixed assets is needed to expand capacity or to enhance the current operation. Generally, addition to investments is judged on the basis of its capability to decrease the present costs or to raise the present output.

Additional working capital is needed to finance raised holding of inventory, raised credit to customers and raised cash holding requirements. Clearly current creditors would finance part of these requirements. Clearly, current creditors would finance part of such requirement for working capital.

If Ramsons invests in the other shop or in expansion of the existing shop, they will need additional funds for investment in fixed assets as also for raised level o current assets. You will see that whenever additional investment is to be form it non-current assets, we have to use the funds (working capital) available with un-separate arrangement is made for their financing. Similarly, when non-current asset are sold they give funds or result in sources of funds.

We could summaries the general applications of funds given as:

1. Acquisition of new non-current assets as fixed assets

2. Replacement of non-current debt as loans

3. Payment of dividends

4. Raise in the balance of working capital as current assets-current liabilities

If the trading or business operations are not successful, they may utilize funds rather that give funds.

Posted Date: 4/9/2013 1:42:29 AM | Location : United States







Related Discussions:- Applications of funds, Assignment Help, Ask Question on Applications of funds, Get Answer, Expert's Help, Applications of funds Discussions

Write discussion on Applications of funds
Your posts are moderated
Related Questions
Tony Allan Inc is a small manufacturer of metal products in Toronto.  The company rents its factory building.  It uses a job order costing system because it has a wide variety of p

meaning and definition of operating costing

Evaluate the discounted mean term (DMT) of a bond redeemable at $120 nominal in 15 years time with annual coupons of 7% (based on a nominal bond of $100) at interest rates of 6% ,

advantages and disadvantages of just in time

The CFO of ABC Municipality has heard of activity based costing and wants to execute it in the municipality. Because ABC involves a number of changes to how service costs are deter

British Columbia Lumber has a Raw Lumber Division and a Finished Lumber Division. The  variable costs are: 1.Raw Lumber Division: Rs. 100 per 100 board-feet of raw lumber 2.F

full explanation on cost concept and classification

#questionFrame-it Ltd is a manufacturer of metal picture frames. The firm''s two product lines are designate S (small frames: 12 x18 cm) and L (large frames: 20 x 25 cm). The prima

1. Suppose your company needs to raise $30 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 8 percent, and you're

How would I calculate the debt amortization for a bond issued at discount with a maturity of 12 years, market interest rate at issue 10% annually, 5% semi annually, and has a state