Cima F2 Exam Question No 25

Question No 25:

What is Security - charges?

1. Fixed charge - The debt is secured against a specific asset, normally land or buildings. This form of security is preferred because, in the event of liquidation, it puts the lender at the 'front of the queue' of creditors.
2. Floating charge - The debt is secured against the general assets of the business. This form of security is not as strong; again it confers a measure of security on liquidation as a 'preferred creditor', meaning the lender is higher in the list of creditors than otherwise.