Page 48 - Business_Studies_F5
P. 48
Student's Book Form Five
investment. Medium-sized business medium-sized businesses whereby business
owners may decide to reallocate some owners dispose some of their idle assets.
of the undistributable profits gained Sale of idle assets is a way of changing
from the business to enhance efficiency unproductive tangible assets into cash. The
and effectiveness in their business medium-sized business may sell idle or
operations. Retained earnings are typically unproductive assets to raise finance that
FOR ONLINE READING ONLY
contemplated as further finance for better may be used for various productive business
business growth in the future. Higher activities or opportunities. However, the
retained earnings indicate that a business business should evaluate the outcomes
is financially healthier. before making a decision to sell some of
Medium-sized enterprises benefit its non-current assets. Income generated
from retained earnings as they are free by the business from the disposal of idle
cashflow that is not repaid. As opposed non-current assets can be reinvested back
to loans, retained earnings have no issue into the business.
costs and no interest rate to be repaid by From sale of non-current assets, the
the business as they are profit reserves business acquires funds without incurring
generated in the business operations. debt, and no interest is charged. It also saves
Retained earnings also provide flexibility some costs to business enterprises that
to business owners in reallocating resources may be used for repairing and maintaining
to different operations. However, some redundant assets. However, the sale of non-
of the challenges of this source of funds current assets decreases the assets which
in supporting medium-sized businesses could be used by the business in the future.
include its inadequacy to support operations It also takes time to find the right buyer,
and future expansions if the medium- something which leads to delaying the
sized business entirely depends on it. availability of funds needed to conduct
This in turn may lead to poor business the business operations.
performance, which is unlikely to attract
external investors hence the inability to Leasing of non-current assets
raise additional capital. This refers to an agreement in which one
party allows another party to use the non-
Sale of non-current assets current assets and return them after the
Non-current assets are the assets whose specified time period. The asset owner is
economic benefits are expected to be known as ‘’lessor’’ meanwhile the person
harnessed for a long time to support business that uses the leased assets is called “lessee’’.
operations. Some of the non-current assets In leasing, the terms and conditions that
include land, plant, equipment, vehicles, regulate agreements are outlined in a
and other properties. Sale of non-current contract between the parties involved.
assets is another source of financing for There must be periodic payment by the
39 Business Studies for Advanced Secondary Schools
30/06/2024 19:02:32
Business Studies FORM 5.indd 39 30/06/2024 19:02:32
Business Studies FORM 5.indd 39
