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NCERT Textbook - Issue and Redemption of Debentures | Accountancy Class 12 - Commerce PDF Download

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FAQs on NCERT Textbook - Issue and Redemption of Debentures - Accountancy Class 12 - Commerce

1. What is the meaning of debentures?
Ans. Debentures are long-term debt instruments issued by companies to borrow money from the public. They are similar to bonds and represent a form of loan taken by the company from the holders of debentures.
2. What is the process of issuing debentures?
Ans. The process of issuing debentures involves the following steps: - The company prepares a prospectus providing details of the debenture issue. - The prospectus is filed with the Registrar of Companies and necessary approvals are obtained. - The company invites applications from the public to subscribe to the debentures. - The company allots debentures to the applicants based on their subscription. - The company receives the subscription money and issues debenture certificates to the subscribers.
3. What is the redemption of debentures?
Ans. Redemption of debentures refers to the repayment of the principal amount of debentures by the company to the debenture holders. The company may redeem debentures either at par value or at a premium or a discount, as specified in the terms of the debenture issue.
4. What are the methods of redemption of debentures?
Ans. There are three methods of redemption of debentures: - Redemption in lump sum: Under this method, the entire amount of debentures is repaid by the company on a specified date. - Redemption by draw of lots: In this method, the company selects a certain number of debentures for redemption through a draw of lots. - Redemption by purchase in the open market: The company may buy back its own debentures from the open market and cancel them to redeem them.
5. What are the advantages of issuing debentures for a company?
Ans. Some advantages of issuing debentures for a company are: - Lower interest rate compared to bank loans: Debentures may offer a lower interest rate compared to bank loans, making it an attractive financing option for companies. - Increased borrowing capacity: By issuing debentures, a company can raise additional funds without diluting ownership or control. - Fixed repayment schedule: Debentures have a fixed repayment schedule, allowing the company to plan its cash flows and financial obligations effectively. - Tax benefits: Interest paid on debentures is tax-deductible for the company, reducing its overall tax liability.
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