Explain the following terms/concepts.
(a) Depositors are the creditors of the company. They are the short term financers. Depositors get interest as a return on investment of money in company deposits.
(b) The deposit holders do not enjoy any management rights, as they are not entitled to vote in the meeting and cannot participate in the management of the company.
(a) Deposit is a short term source of finance of the company and it is used in order to satisfy short term working capital needs of the company.
(b) Company cannot accept deposits for a period less than 6 months or more than 36 months.
(3) Interest on Deposit
(a) Interest on deposit is paid by the company to the deposit account holder. The rate of interest is fixed. (b) A company who has made default in repayment of any interest on deposit on such amount can’t invite deposits.
(4) Deposit Receipt
(a) A deposit receipt Is a receipt Issued by a banker of the company to a depositor for cash and cheque deposited with the bank.
(b) The information recorded on the receipt includes the date and time, the amount deposited, and the account into which the funds were deposited.
(5) Renewal of Deposit
(a) A process whereby the deposit holder continues with the deposit for an additional time period after the completion of the initial time period of investment (deposit) is called as Renewal of Deposit’.
(b) The additional period can be similar or different from the original time period. Instead of withdrawing the deposit amount this is continued.
(6) Repayment of Deposit
(a) On maturity of tenure of deposits, it is binding on the company to repay the deposits.
(b) Default in repayment of deposit results in levy of penalty. A company must intimate the depositor’s details of maturity, at least 2 months before the deposit.