vijay gopal pillai (Accountant) (27 Points)
10 October 2019I am working in the investment Company. which deals with purchased & sales of shares I want to Know on which factors provision for diminution in the value of Investment is made, On which factors it depends. Further what is the format in Excell.. Please reply soon
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 11 May 2020
Provisions standard does not comply with standards like Income taxes, Employee benefits, Leases, Insurance contracts and Financial instruments. Also, an entity cannot provide for future losses. So, diminution means the amount of authorised capital which was cancelled during an issue. There could be factors like:
The amount of capital raised was over-budgeted and that is why the firm had cancelled a portion or complete issue to reduce/avoid costs of capital like Ke (Equity cost of capital), Kd (Debenture cost of capital), Ki (Term loan cost of capital) and Kp (Preference Share cost of capital).
Next, the firm anticipated lower returns and since dividends are a burden, it had cancelled its issue as there is low growth.
The above are my assumptions and there is no excel format for it as it looks like a qualitative analysis on market conditions.
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