Please Help: Commerical Papers
Posted Date : 13-Sep-2011 , 01:12:05 pm | Posted By: Rohit Agarwal
Category :
Accounts | Answers :
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where to disclose CPs in financial statements....
Should it be shown under Unsecured Loan or Current Liability....??????
Second... What is the treatment of Interest accrued on such CPs?
Either to show as prepaid interest by taking the total maturity amount as liability....
or showing it as accrued interest till the date by taking the amount received as the liability????? |
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Answers:
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 Answer by: Rohit Agarwal |
| COMMERCIAL PAPER IN INDIA:
INTRODUCTION:
It was introduced in India in 1990 with a view to enabling highly rated corporate borrowers/ to diversify their sources of short-term borrowings and to provide an additional instrument to investors.
ISSUER OF COMMERCIAL PAPER:
Corporate, primary dealers (PDs) and the All-India Financial Institutions (FIs) are eligible to issue CP.
ELIGIBILITY CRITERIA FOR ISSUING COMMERCIAL PAPER:
A corporate would be eligible to issue CP provided –
the tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs. 4 crore
company has been sanctioned working capital limit by banks or all-India financial institutions
the borrowal account of the company is classified as a Standard Asset by the financing banks/ institutions.
To summaries the above discussion on commercial paper
CPs are issued by companies in the form of usance promissory note, redeemable at par to the holder on maturity.
The tangible net worth of the issuing company should be not less than Rs.4 crores.
Working capital (fund based) limit of the company should not be less than Rs.4 crores.
Credit rating should be at least equivalent of P2/A2/PP2/Ind.D.2 or higher from any approved rating agencies and should be more than 2 months old on the date of issue of CP.
Corporates are allowed to issue CP up to 100% of their fund based working capital limits.
It is issued at a discount to face value.
CP attracts stamp duty.
CP can be issued for maturities between 15 days and less than one year from the date of issue.
CP may be issued in the multiples of Rs.5 lakh.
No prior approval of RBI is needed to issue CP and underwriting the issue is not mandatory.
All expenses (such as dealers’ fees, rating agency fee and charges for provision of stand-by facilities) for issue of CP are to be borne by the issuing company
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| Answer by: Ashish Karundia |
| Dear Rohit,
Greeting for the day !
I think that there is no need to post a query if the person posting the query himself is going to answer the same.
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