Source of Finance

Loan and borrowing is a one type of sources if finance employed by the HaiO Company.
The company loan and borrowing have borrowed within one-year (liabilities) and more than one
year (non-current liabilities). Based on the Statement of Financial Position 2012, the amount of
both of loans and borrowings in liabilities and non-current liabilities also decrease. This is
because they increase their financial by other source such as share capital and trade and other
payables.
Definition of loan and borrowing is the amount of money that the lender will loan to a
company based on the value of the collateral the company promise such as paying the fixed
amount of interest rate (Investopedia, 2012). According to the Note 15 in an Annual Report of
HaiO 2012, the loan and borrowing include secured bank loans, bankers acceptances
(unsecured) and other sources.
According to Tyler (2011), the secured bank loans also called senior bank loan. It is a
loan that is attracted by some type of collateral. If the borrower cannot pay back full amount of
loan, the lender have a legal right to take possession of the collateral. Therefore, the bank loan is
secured over investment properties and land and building in HaiO Company.
Investment properties of the Company with the total carrying amount of RM26,570,253
in year 2012 which is more high than year 2011, RM8,291,015. According to Investopedia
(2012), the definition of investment property is a real estate property that has been purchased
with the purpose of earning a return on the purchases (investment) by rental income or future
resale. HaiO is increasing the secured over investment property because the estimation of fair
values of the investment properties are changed that using the values provided in the prior years
valuation reports on the assumption that there were no material fluctuations to the fair values of
the investment properties during the year. Therefore, the fair value of the investment property
may be lower by using this method compared to the comparison method that using in year 2011.
At 30 April 2012, properties of the Company with the total carrying amount of
RM17,726,685 which less than in year 2011, RM36,181,688 have been pledged as security to
secure a bank loan. Generally, the secured loan is a type of loan that has a lower interest rate than
other loan because the bank is taking a lower risk that banker can collect the collateral that you

promise at the beginning. Besides, the bank also holds legal claim to the company assets (land
and building) above all the debt obligations. Therefore, this is a reason that HaiO Company
borrows a high total of secured bank loan in year 2011 to finance their Company because it has a
lower interest rate pay.
But, there are some risks in taking secured bank loan that make HaiO Company to reduce
the borrowing in year 2012 such as liquidity risk (Note 27.5). Liquidity risk is the risk to which
assets can be bought or sold in the market without affecting the assets price. Therefore, the
Company exposure to liquidity risk emerges from their loans and borrowing. They ensure that
the level of cash and bank equipment are always in adequate to meet their financial liability as
they fall due.