Graded Discussion Board
Business Finance (ACC501)
This is to inform that Graded Discussion Board (GDB) No. 01 will be opened on November 18, 2014 for discussion and last date for posting your discussion will be November 21, 2014.
Topic/Area for Discussion
This Graded Discussion Board will cover first 06 lessons.
If a company induces debt in its capital structure, it gets tax advantage i.e. its tax liability is reduced. This particular tax advantage is known as tax shield. Theoretically, it can be said in this case that the overall capital of a company should be financed through debt in order to avail maximum advantage. Is it practically possible and feasible? Discuss its impact on business entity.
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Yes, it is practically possible that debt can be worked as a tax shield. Simply a person or a bank gives loan or finance unless they got security of products, land and machinery. When a person using loan from a bank, it reduces the tax for the owner of the industry. This is a simple theory, at the end of working year FBR visits and demands for the bills of electricity and markup of a year, which will be deducted from the total amount of tax. If a person was unable to pay the markup or loan then the bank will cease his property and everything till their amount recovers.
Guyz this is an idea that I shared... I hope it will help us
Debt is always not feasible for capital structure if all the capital we financed with debt we would get the benefits of Tax shield but in other way we have risk for return back the debt amount, If our business shutdown and we will be unable to pay the debt we have to pay from our personal property.