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Page 1 CPT Fundamentals of Accounting Chapter 9 Unit 4 Presented by : CA .Sanket Shah Page 2 CPT Fundamentals of Accounting Chapter 9 Unit 4 Presented by : CA .Sanket Shah I • Introduction II • Meaning III • Features of Debentures IV • Types of Debentures V • Certain Terms VI • Categories of Issue of Debentures Page 3 CPT Fundamentals of Accounting Chapter 9 Unit 4 Presented by : CA .Sanket Shah I • Introduction II • Meaning III • Features of Debentures IV • Types of Debentures V • Certain Terms VI • Categories of Issue of Debentures VII : • Utilisation of Debentures Premium VIII : • Concept of Discount on Debentures IX : • Issue of Debentures as collateral security X : • Issue of Debentures in consideration other than cash XI : • Interest on Debentures XII: • MCQ Page 4 CPT Fundamentals of Accounting Chapter 9 Unit 4 Presented by : CA .Sanket Shah I • Introduction II • Meaning III • Features of Debentures IV • Types of Debentures V • Certain Terms VI • Categories of Issue of Debentures VII : • Utilisation of Debentures Premium VIII : • Concept of Discount on Debentures IX : • Issue of Debentures as collateral security X : • Issue of Debentures in consideration other than cash XI : • Interest on Debentures XII: • MCQ One of the source of financing. It reduces cost of capital. It designs appropriate capital structure. Debt instrument issued by Co. Page 5 CPT Fundamentals of Accounting Chapter 9 Unit 4 Presented by : CA .Sanket Shah I • Introduction II • Meaning III • Features of Debentures IV • Types of Debentures V • Certain Terms VI • Categories of Issue of Debentures VII : • Utilisation of Debentures Premium VIII : • Concept of Discount on Debentures IX : • Issue of Debentures as collateral security X : • Issue of Debentures in consideration other than cash XI : • Interest on Debentures XII: • MCQ One of the source of financing. It reduces cost of capital. It designs appropriate capital structure. Debt instrument issued by Co. A debenture is a bond issued by a company under its seal acknowledging a debt & containing provisions as regards repayment of principal & interest.Read More
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FAQs on PPT - Issue of Debentures - Principles and Practice of Accounting - CA Foundation
| 1. What are debentures? |  |
Ans. Debentures refer to a type of long-term debt instrument issued by companies or organizations to raise funds. It is a form of loan taken by the company from the public, which is repayable at a fixed rate of interest over a specified period.
| 2. How does issuing debentures benefit a company? | |
Ans. Issuing debentures allows a company to raise funds for various purposes such as expansion, working capital requirements, or debt refinancing. It provides an alternative to equity financing, allowing the company to maintain control and ownership while raising capital. Debentures also offer a fixed rate of interest, reducing the risk of fluctuating interest rates.
| 3. What is the process of issuing debentures? | |
Ans. The process of issuing debentures involves the following steps:
1. Company decides the terms and conditions of debenture issuance, including the interest rate, maturity period, and redemption terms.
2. The company prepares a prospectus or offer document with all the necessary information and disclosures.
3. The offer document is then filed with the regulatory authorities for approval.
4. Once approved, the company advertises the debenture issuance to the public.
5. Interested investors can subscribe to the debentures by filling out the application form and making the necessary payment.
6. The company allots the debentures to the subscribers and issues debenture certificates as proof of ownership.
| 4. What are the different types of debentures? | |
Ans. There are various types of debentures, including:
1. Secured Debentures: These are backed by specific assets of the company, giving the debenture holders priority in case of liquidation or default.
2. Unsecured Debentures: Also known as "naked" debentures, these are not backed by any specific assets and rely solely on the creditworthiness of the company.
3. Convertible Debentures: These debentures can be converted into equity shares of the company after a specified period. It provides an option for debenture holders to become shareholders.
4. Non-Convertible Debentures: These debentures cannot be converted into equity shares and only provide a fixed rate of interest until maturity.
5. Redeemable Debentures: These debentures are repayable by the company after a specific period or on a predetermined date.
6. Irredeemable Debentures: Also known as perpetual debentures, these are not repayable by the company and provide a fixed rate of interest indefinitely.
| 5. What are the risks associated with investing in debentures? | |
Ans. Investing in debentures carries certain risks, including:
1. Credit Risk: There is a risk of default by the company in repaying the principal amount or interest on debentures.
2. Interest Rate Risk: Fluctuations in the interest rates can affect the market value of debentures. If interest rates rise, the value of existing debentures may decrease.
3. Liquidity Risk: Debentures may not have an active secondary market, making it difficult to sell them before maturity.
4. Redemption Risk: If a company fails to redeem the debentures on the specified date or at maturity, it can cause financial loss to the debenture holders.
5. Market Risk: The market value of debentures can be influenced by factors such as economic conditions, industry performance, and investor sentiment.
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