Partnership is an association of two or more persons who have mutually decided to carry out business activities jointly and share its profits as well as losses. The partnership agreement may be written or oral. 

Some of the features of partnership are:-

1. Two or More Persons 2. Agreement 3. Lawful Business 4. Registration 5. Profit Sharing 6. Agency Relationship 7. Unlimited Liability 8. Not a Separate Legal Entity 9. Transfer of Interest

10. Mutual Trust and Confidence 11. Number of Partners 12. Profit Sharing 13. Principal-Agent Relationship 14. Joint Ownership 15. Ownership and Control 16. Registration 17. Duration 18. Capital and a Few Others.

Forfeited shares can be reissued as fully paid at a par, premium or discount. In this, it may be noted that the amount of discount allowed cannot exceed the amount that had been received on forfeited shares at the time of initial issue.

According to the Companies Act 2013, there are some laws about the utilization of the Securities Premium Account. It states the specific purposes for which this balance may be used. So the account can only be used for such specific purposes and no other purpose.

To issue fully paid-up bonus shares to its existing shareholders. However, you cannot exceed the limit of the unissued share capital of the company.

Securities premium Account can be used for writing off any preliminary expenses of the company.

To write off expenses of issue of shares and debentures, such as commission paid or discount given on the issue of shares.

The balance can also be used to provide for the premium that is payable on the redemption of debentures or of preference shares of the company.

And finally, it can be utilized by the company to buy back its own shares.

The amount of securities premium can be utilised for the following purposes:

1) For writing-off the preliminary expenses of the company.

2) For writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company.

3) For paying up the premium payable on redemption of redeemable preference shares or debentures of the company.

Debentures:

• It is a document known as Debenture Certificate.
• It is an acknowledgement of debt by the company.
• It is an agreement between the company and its debenture holders for repayment of the principal amount on a specified date along with interest at a pre-determined rate charged on the principal amount until the principal is repaid.
• It is an evidence of a debt to the holder usually arising out of a loan and mostly secured by a charge.

Question

Calculate interest coverage ratio and give your comments:

net profit after tax:120000

rate of income tax:40%

16% debentures Rs 100000

Answer:

Interest Coverage Ratio = Profit before Interest and Tax
Profit after Tax = Rs 1,20,000
Tax Rate = 40%
Value of 60% = Rs 1,20,000
Value of 40% = Rs 1,20,000/60%*40% = Rs 80,000

Profit after Interest but before Tax = Rs 2,00,000 (Rs 1,20,000+Rs 80,000)
Interest on Loan = Rs 15,000 (Rs 1,00,000*15%)
Profit before Interest and Tax = Rs 2,00,000+Rs  15,000 = Rs 2,15,000

Interest Coverage Ratio = Rs 2,15,000/16,000 = 13.4:1.

A good current ratio is between 1.2 to 2, which means that the business has 2 times more current assets than liabilities to covers its debts. A current ratio below 1 means that the company doesn't have enough liquid assets to cover its short-term liabilities. The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. It tells investors and analysts how a company can maximize the current assets on its balance sheet to satisfy its current debt and other payables.

The economic value of an obligation or debt that is payable by the enterprise to other establishment or individual is referred to liability. To put it in other words, liabilities are the obligations that are rising out of previous transactions, which is payable by the enterprise, through the assets possessed by the enterprise.

Example: Accounts payable, Interest payable, Deferred revenue etc.