Question
Explain the difference between owner’s fund and borrowed Funds.
| No. | Point of different | Owner’s Funds | Borrowed Funds |
| $1.$ | Meaning | The capital invested by owner is called owner's fund. | Fund invested in business by making the debt is called borrowed funds. |
| $2.$ | Sources | This fund can be obtained by share capital, ploughing back of profit, depreciation fund, reserve and other fund. | This fund can be obtained by debenture, bank loan, cash credit, overdraft, public deposit, financial institution etc. |
| $3.$ | Uses | This funds are used to satisfy long and medium term financial requirement. | This funds are used to satisfy short and medium term financial requirement. |
| $4.$ | Fixed return | Return is not fixed on owner's fund. It can be more or less in the context of profit. | Interest is fixed on borrowed fund. |
| $5.$ | Repayment of capital | Owner's funds are the fund of the business, hence it is return back only when company goes into liquidation. | Borrowed funds are returned as per the terms and conditions of borrowing. |
| $6.$ | Nature of return | Return obtained in the form of dividend on owner's fund. | Return obtained in the form of interest at definite rate. |
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