Assignment No.

- 1

Attempt the following Questions:

How is working capital affected by inflation? Impact of Inflation on Working Capital Requirement When the inflation rate is high, it will have a direct impact on the requirement of working capital as explained below: Inflation will cause the slow turnover figure at higher level even if there is no increase in the quantity of sale. The higher the sale means the higher level of balance in receivables. Inflation will result in the increase of raw material price and hike in the payment for expenses and as a result increase in balance of trade creditors and creditors for expense. Increase in the valuation of closing stock will result in showing higher profits but without its realization into cash cause the firm to pay higher tax dividend and bonus. This will lead the firm in serious problem in fund shortage and the firm may enable to meet its short term and long-term obligation. Increase in investment in current asset means the increase in the requirement of working capital without corresponding increase in sale or profitability of a firm. In order to control working capital needs in periods of inflation, the following measures may be applied. The possibility of using substitute raw materials without affecting quality must be explored in all seriousness. Research activities in this regard may be undertaken, with financial assistance provided by the Government and the corporate sector, if any. Attempts must be made to increase the productivity of the work force by proper motivational strategies. Before going in for any incentive scheme, the cost involved must be weighed against the benefit to be derived. Though wages in accounting are considered a variable cost, they have tended to become partly fixed in nature due to the influence of various legislative measures adopted by the Central or State Governments. Increased productivity results in an increase in value added and this has the effect of reducing labor cost per unit. What is cost of capital? Differentiate between explicit and implicit cost.

The cost of capital is a term used in the field of financial investment to refer to the cost of a company's funds (both debt and equity), or, from an investor's point of view "the shareholder's required return on a portfolio company's existing securities". It is used to

evaluate new projects of a company as it is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet

expenditures of a potential action or business activity, and to determine the actual profits of a company.

Meanwhile, explicit costs also have alternative labels like: economic costs, notational costs, and implied costs.

reflect a business payment for a transaction. On the other hand, implicit costs are not often recorded and they do not occur directly. This type of cost reflects a potential opportunity, benefits, or advantages that might have occurred in a given situation. In addition, explicit costs can be emergency costs in an unforeseen situation. fit and performance. In contrast, explicit costs can determine the total costs of the business as well as the businesss economic profits.

Enumerate SEBI's guidelines on "Bonus Issues"

Securities and Exchange Board of India (SEBI) guidelines are to be followed for issue of bonus shares:-

No company shall, issue the shares by the way of bonus unless the benefits are extended to the shareholders.

1. The bonus issue is made out of free reserves built out of the profits or share premium collected in cash only.

2. The residual reserves after the proposed capitalization shall be at least 40% of the increased paid up.