How to utilize surplus reserves?

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Bharti (Querist)
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02 January 2016 Dear Experts, I have to prepare Projected Financials and Project Report of a Pvt. Ltd. Company for next 5 years to apply for loan of Rs. 52 lacks to finance plant and machinery and Factory premises having cost of rs. 1 Crore. Apart from these loans , company is having directors' Loan as required to finance the project. The private ltd. company having paid up capital of Rs 1 lac. Profits of the company are so huge in upcoming 5 years, thats why there will be huge cumulative surplus reserves in future. So my Balance Sheets are not tallying. As reserves are so huge, as a result the balancing cash and bank balance is so high..which is not reasonable and looks unbelievable. So I need suggestions regarding utilization of reserves and surplus, by considering the above case. . and please suggest how to present projected financials in more attractive and believable way? Thanks in advance.

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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02 January 2016 Assumed from your query , you are looking for the term loan for the Purchase plant and factory premises, It is not working capital, so your projected financials you can simply justify your capacity to meet the repayment conditions of term loan along with interest in addition to the expenses and finance cost of any other loan and repayment. It is loan for initial funding for set up,so project the case balance according to your cash requirements and adjust assumptions on the other current assets like increase in stock, Debtors (credit period), current liabilities side correct the credit period on creditors which reduce your cash balance. you can also consider to repayment of directors loan before the term loan if your repayment term with bankers if agreed.

Bharti

Bharti (Querist)
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02 January 2016 yes Sir.. i did all these things, but still there are huge reserves in comparison to capital. e.g. my capital is rs 1lac and cumulative reserves and surplus are Rs. 2 to 3 crores. in such case company can declare huge dividend. Apart from dividend, what is the other option which is available in order to utilize Reserves and to make them reliable?

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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02 January 2016 can I know what is repayment term expected with the loan and moritorium period if any. dividend declaring may not recommended unless you have preference share capital, because most of the bankers may not agree for dividend declaration when the term loan is due to pay.

Bharti

Bharti (Querist)
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03 January 2016 First of all thanks for reply.. Repayment period is 5 years, for which company is paying interest @ 10.75% p.a. on outstanding balance.

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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03 January 2016 you have only the following options
1. Initial years, keep the production/sale capacity level low since beginning years
2. show the creditors low, make the maximum paid
3.Make working capital (if any) level as minimum utilisation
4.Show the Parallel to director`s loan also with bank loan

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