explain why a profitable company might show an overdraft in its balance sheet.

the directors of maximprime berhad are reviewing the final accounts of the company, which show an operation profit after tax of rm800,000 and retained profits from the previous year totaling rm1,7 million. the balance sheet shows a bank oevrdraft of rm150,000 and the company has maximum overdraft facilities of rm750,000

a) explain why a profitable company might show an overdraft in its balance sheet.

b) the retained profit is referred to a revenue reserve. What is the other type of reserve might have?

c) Revenue reserves can be used to pay dividend to shareholders. why might the directors of maximprime berhad be reluctant to pay the full rm2 million as a dividend to the shareholders?

d) if the company wanted to imptove its bank balance, it might consider issuing ordinary shares, preference shares, debentures or convertible loan stock. What are the key features of each of these?

 

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