Construction Preparation and Presentation of Financial Statements

Question: Discuss about the Construction Preparation and Presentation of Financial Statements. Answer: Introduction: The Capital Maintenance Doctrine is said to be a tool that companies use to retain its capital. It is stipulated in the company law that every firm must hold a certain amount of capital so that when debts arise, the company can resort to its capital to settle them. Normally, the companies obtain loans from creditors such as banks and other financial institutions. Given the critical role that these entities play, they must be given priority in such incidences of uncertainty. The Capital Maintenance Doctrine therefore was created to cater for the interests of the institutions as well as to maintain the welfare of the companies. The doctrine can be discussed from two perspectives as it has been seen in the above sentiments. One of them is the creditors demands and secondly is the manner in which the company property can be dissipated in the event that a conflict has come up. To enforce this doctrine, the courts have been given the mandate to provide an interface between the companies and the funding agencies. The judicial interpretations are vital in that the creditors would receive their compensation from the existing company capital. For this reason, the directors of companies are advised to pay their shareholders from the investment returns and not the company capital. Jessel M. R. in Flitcrofts Case contends that there have been cases across the world whereby companies have been taken to account for repossessing shares from the shareholders. In one of the suits filed by a shareholder, the courts ruled that the company taking back its shares must compensate that shareholder even more because it was not advisable for the company to do so. Such action would reduce the capital which would further compromise the position of the creditors. the decision by the court also indicated that a company can only take back its shares when it has made the decision to wind up, and in this case the funding agencies are always given priority. The Capital Maintenance Doctrine has been adopted across the whole world but countries such as Australia have a different perspective of the same. The regulatory agencies have no strict measures regarding the amount of capital that a company should retain. The law society of Australia has developed argumentative propositions to determine whether capital retention is essential in any economy. Instead they contend that crucial matters should first of all be addressed before putting in place such a doctrine. Some of the pertinent issues to be examined first include the solvency of the company and the material factors that constitute a company. Therefore, Australia is a liberal economy which has given a free hand to the companies to operate at their own disposals. However, one would opine that the government should consider adopting the doctrine and its ideologies because Australia is a large investment hub that hosts many people from other countries. Other investors who wish to do business in the country have a desire that they get protection from the doctrine. The country must design a policy that will incorporate the Capital Maintenance Doctrine for the sake of investors. Bibliography McChesney W.A (2012). The New Generation of Risk Management for Hedge Funds and Private Equity Investments. Cengage Learning. Boston, Massachusetts Monk, E.W. (2009). Monopoly-Finance Capital and the Paradox of Accumulation. John Wiley and Sons Ranganathan, C.I. (2013). Framework for the Preparation and Presentation of Financial Statements. Cambridge University Press, New York Spillane, J.B. (2010). Forms of Capital and the Construction of Leadership. European Operational Research Jessel M. R. in Flitcrofts Case (1882) 21 Ch. D. 519. Shashi Bala v. CIT, (1964) 34 Com Cases 985 (Guj).