OMTEX CLASSES: What are the advantages of deposits?

What are the advantages of deposits?



Meaning: - The term 'Public deposit' means any money collected by a company in the form of deposits or loans from the public. The advantages are as follows:

Definition: -According to Companies Act 1956 the term deposit means 'Any deposit of money with the company and any amount borrowed by the company'

1.       Lower Cost: -The rate of interest on deposits is lower than the rate of interest on loans from banks.

2.       Unsecured: - Deposits are unsecured loans and thus no charge is to be created on the assets of the company.

3.       Control: - Deposits do not provide the depositors any control over the company and thus the owners retain the ownership in their existing ratios.

4.       Tax Savings: -Interest paid on public deposits by the company is deducted as expenses while calculating taxable income. Thus, the tax liability of the company is reduced.

5.       Working Capital: -Deposits act as an important source of raising working capital for the company.

6.       Increase in shareholders Return: - The interest cost of deposits is lower than loans from banks which increase the profits and thereby return to shareholders.