Arun Dhariwal is the president and principal stockholder of ABC Inc. The business is applying for a INR 1000,000 bank loan for expansion. Arun believes he is more likely to get approved for the loan if the business's balance sheet looks good. He is considering the following options for improving the owner's equity of the business in order to obtain the loan:
1. Issue INR 500,000 of common stock in exchange for cash to a friend who is interested in investing in the company. This would increase assets (cash) by INR 500,000 and increase owner's equity by INR 500,000.
OR
2. Transfer INR 500,000 of Arun's personal land to the business and issue common stock to herself. After the loan is obtained, Arun will transfer the land back to herself and zero out the common stock. This would temporarily increase assets (land) by INR 500,000 and increase owner's equity by INR 500,000.
Analyze the alternatives from an ethical and a business point of view.
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