BUSINESS LETTER

Business letter

6 September 2013

Steven Evans

Managing Director, Pacific Ltd

Level 6, 510 King William Street

Adelaide SA 5000

Mr. Evans,

We are pleased to respond to your query for long term finance of the business and writing of the expenses. As there are several sources to raise fund and each source has its own cost. Some instruments or sources for raising fund for business are regarded as short term and through some source business can opt for long term fund raising. As you mentioned that are going for long term fund raising and sources under consideration are issuance of share or raising fund through debentures. Both source are sound and have different characteristics. However, there are certain costs that are associated with both of them.

For financing through share capital, it is to mention here that it is necessary to disclose issued capital in a published balance sheet by the company but it is not added with other items of share holder's equity. For issuing share company is accountable for cost that incurs in issuing those shares. It is mentioned in Australian Accounting Standards Board (AASB) 132, paragraph 35, all transaction cost of issuing shares that are categorized as equity are deducted from equity. These are costs includes accounting, legal, registration, stamp duties and underwriting fees etc. in AASB 101 paragraph 97, it is required to reconcile the opening and closing of share capital by recording incremental cost of issuance.

Debentures are referred as simple affirmation to the debt company acquired. It is notable that debentures are relevantly smaller in units as compared with shares but the price of the debentures is usually higher than shares. By issuing debentures business is able to pool funds from various investors (as done through issuing shares). Investors of company's debentures are actually lending their money to the ...