MGT101 Financial Accounting GDB No. 02 Solution and Discussion Spring Fall 2014

[education-2014]

MGT101 Financial Accounting Graded Discussion Board (GDB) No. 02 Solution and Discussion- Due Date: Aug 09, 2014


Topic/Area for Discussion

“Mark Up on Capital and Drawings"


CONSTRUCT:

Mr. A, Mr. B and Mr. C joined hands for mutual business as partnership firm. They are agreed on equal share in capital and profit & loss. However, after one year Mr. B provided extra Rs. 100,000 for contingency expense on 12% interest rate (Annual) until the repayment. It was not possible to return the loan amount to the Partner Mr. B due to the increasing requirement of capital for flourishing business. Mr. C withdraws Rs. 50,000 on 10% interest rate (Annual) from business resources for the treatment of his wife.

After few years, all partners agreed to convert partnership firm into public limited company, no change in business line, to meet the capital requirements and all partners with other four members became directors of newly incorporated ABC Corporation. Before signing the directorship document, each director legally bound to subscribe and paid for its shareholding. Mr. B has also been invested one million more in the newly incorporated Company. Company rules allow giving the interest free loan to the directors for not more than one year.

DISCUSSION QUESTIONS:


DISCUSSION QUESTIONS:

You are required to comment with logical reasoning,

Is Mr. B still having the right to receive interest on its extra-invested amount? If, yes why, not why? Give logical reasoning.
Is Mr. C still liable to pay interest on withdrew amount? If, yes why, not why?

[education-2014]

Definition of 'Markup'

The difference between an investment's lowest current offering price among dealers and the higher price a dealer charges a customer. Markups occur when dealers act as principals (buying and selling securities from their own accounts, at their own risk), as opposed to brokers (receiving a fee for facilitating a transaction).

explains 'Markup'

Certain securities are available for purchase by retail investors from dealers who sell the securities directly from their own accounts. The dealer's only compensation for the sale comes in the form of the markup, the difference between the price the security was purchased at and the price the dealer charges to the retail investor. The dealer assumes some risk by acting in this capacity, as the market price of the security in his or her inventory could drop before he/she is able to sell to investors.

Note that most dealers are also brokers, and vice versa, so the term broker-dealer is common.