Watered Capital and its Causes, Summaries of Financial Management

Download Watered Capital and its Causes and more Summaries Financial Management in PDF only on Docsity!

7, WS Better rn Watered Capital = - gare is called watered capital. It | jue% worthless than its book value”. Watered ¥rom a going concern. The capi example, ifa company pays Rs. 2,00,000 is watered to the extent of Rs. 50,000. Causes of Watered Capital wk ep = That part of capital, which is not represented by assets, : as water. According to Hoagland, “A stock is said to be watered when its true val capital may arise if company pays excess price for an as tal becomes watered to the extent of excess price paid for an asset, but its true value is only Rs. 1,50,00 a The causes of watered capital are outlined as follows: Purchase or transfer of assets at inflated price. _ Huge investments in intangible assets like goodw Over-valuation of services of promoters. on policy (¢.g,, inadequate provisions for depreciatic cde e of: ill, trademarks et Defective depreciati Unforeseen internal or external changes (¢.g.. fall in the real val inal conditions, decline in profits etc.) ahaa