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Meaning: A encumbrance is a limitation on the ownership of a property.
Statement format: In the real estate world, an encumbrance is similar to a lien. The bond world also includes ENCUMBRANCE. for instant, let’s consider a $100 million bond issue by company XYZ. let’s say that company XYZ is willing to pledge $100 million of its assets.
In accounting, an amount of money that one is required to spend on a stated thing in the future.
For example, a portion of the proceeds of a sale may be encumbered to pay for the cost of goods sold.
Accounting: Acontingent liability, contract, purchaseorder,payrollcommitment,tax payable, orlegalpenaltythat ischargeableto anaccount. It ceases to be an encumbrance when paid-out or when the actualliabilityamountis determined and recorded as anexpense.
Encumbarance can be in many form like mortgages,easements and property tax lien.Not all encumbarances are financial.easements are non financial form
Eg : A company xyz is willing to pledge 150 million of its assets to the bond holders giving them a little extra assurance that they will be paid on time in that case bonds would be considered securitized or asset backed because assets have 150 million of encumbrances on them.
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