CMA Intermediate · Financial Management and Business Data Analytics · Sources of Finance
A company's finance team classifies its sources as owned capital or borrowed capital. Which of the following is borrowed capital?
Public deposits accepted by the company are borrowed capital because they create a debt obligation to repay principal with interest. Securities premium and general reserve form part of owners' funds, and preference share capital is shown as share capital in the traditional owned-versus-borrowed classification.
- APreference share capital redeemable after 10 years issued as a share
- BSecurities premium account
- CPublic deposits accepted by the companyCorrect
- DGeneral reserve
Explanation
Public deposits create a liability to repay with interest, so they are borrowed capital. Securities premium and general reserve belong to owners' funds. Preference share capital is classified as part of share capital, i.e., owned capital, in the traditional classification.
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