Reference no: EM132469039

DBP Berhad is planning to expand its business in the coming years. It requires a signi?cant amount of capital that the company currently does not have. Consequently, it looks for alternatives in ?nancing the expansion as follows:

Alternative 1 - Issuing 1,000,000 units of Ordinary Shares, which is equivalent to the numberm shares currently issued and paid up. The shares will be issued at RM5.00 each, 20 cent higher than the current market price of the company's shares.

Alternative 2 - Issuing 50,000 units of 5% Preference Shares at the price of RM100 each. This share will be issued as cumulative and participating preference shares.

Alternative 3 - Issuing 5,000 units of Bonds worth RM1,000 each with 8% interest, maturing in 8 years.

Alternative 4 - Applying for RM5,000,000 worth of long-term loan from a local bank at an annual interest of 7%, payable over 6 years.

Required:

Question 1: Equity and liability are two elements of ?nancial statements that ?nance a company's assets. Explain these two elements and the main difference between the two. Give example where necessary. 

Question 2: In your opinion, which alternative should DBP Berhad choose? In giving your opinion, you should also explain why the other three would not be an appropriate choice for DBP Berhad.

Question 3: Show the journal entries for all of the alternatives above, at issuance and granting of the loan by bank.

Question 4: Assume that all transactions are paid by cheques or direct into bank and, where applicable, are fully subscribed.