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Company Accounts 
Company Accounts 
(Redemption of Debentures
(Redemption of Debentures
Page 2


1 1
Company Accounts 
Company Accounts 
(Redemption of Debentures
(Redemption of Debentures
2
Meaning
             Redemption of Debentures means 
repayment of the amount of debentures to the 
debenture holders or discharge of the liability 
on account of debentures.
             A company is authorised by its 
Articles of Association and the terms of issue 
and redeem the debentures before the due date 
in prospectus.
Page 3


1 1
Company Accounts 
Company Accounts 
(Redemption of Debentures
(Redemption of Debentures
2
Meaning
             Redemption of Debentures means 
repayment of the amount of debentures to the 
debenture holders or discharge of the liability 
on account of debentures.
             A company is authorised by its 
Articles of Association and the terms of issue 
and redeem the debentures before the due date 
in prospectus.
 
 
The following are the conditions at the time of 
Redemption of Debentures
1.Time: Debentures are normally redeemed on the 
due date.  At what time money will be paid back? 
First one is  Lumpsum on a specific date and second 
one in  installments
2.Amount: How much money paid. The debentures 
can be issued at par, premium and discount in the 
same way debentures can be redeemed at par or a 
premium but debentures cannot be redeemed at 
discount.
3. Mode
4.Source
3 3
Conditions
Page 4


1 1
Company Accounts 
Company Accounts 
(Redemption of Debentures
(Redemption of Debentures
2
Meaning
             Redemption of Debentures means 
repayment of the amount of debentures to the 
debenture holders or discharge of the liability 
on account of debentures.
             A company is authorised by its 
Articles of Association and the terms of issue 
and redeem the debentures before the due date 
in prospectus.
 
 
The following are the conditions at the time of 
Redemption of Debentures
1.Time: Debentures are normally redeemed on the 
due date.  At what time money will be paid back? 
First one is  Lumpsum on a specific date and second 
one in  installments
2.Amount: How much money paid. The debentures 
can be issued at par, premium and discount in the 
same way debentures can be redeemed at par or a 
premium but debentures cannot be redeemed at 
discount.
3. Mode
4.Source
3 3
Conditions
4 4
3. Mode: How the company will pay -    by 
way of Cash  through cheque on a due date or  
by way of kind issuing equity shares of a 
company on maturity date.
4. Source: Debentures can be redeemed out of 
Capital or Profits. If the debentures are 
redeemed out of capital means no effect on 
profits.  It will reduce cash and liability only.   
If the debentures are redeemed out of profit 
means the same amount will be appropriated 
out of profits of a company. 
Page 5


1 1
Company Accounts 
Company Accounts 
(Redemption of Debentures
(Redemption of Debentures
2
Meaning
             Redemption of Debentures means 
repayment of the amount of debentures to the 
debenture holders or discharge of the liability 
on account of debentures.
             A company is authorised by its 
Articles of Association and the terms of issue 
and redeem the debentures before the due date 
in prospectus.
 
 
The following are the conditions at the time of 
Redemption of Debentures
1.Time: Debentures are normally redeemed on the 
due date.  At what time money will be paid back? 
First one is  Lumpsum on a specific date and second 
one in  installments
2.Amount: How much money paid. The debentures 
can be issued at par, premium and discount in the 
same way debentures can be redeemed at par or a 
premium but debentures cannot be redeemed at 
discount.
3. Mode
4.Source
3 3
Conditions
4 4
3. Mode: How the company will pay -    by 
way of Cash  through cheque on a due date or  
by way of kind issuing equity shares of a 
company on maturity date.
4. Source: Debentures can be redeemed out of 
Capital or Profits. If the debentures are 
redeemed out of capital means no effect on 
profits.  It will reduce cash and liability only.   
If the debentures are redeemed out of profit 
means the same amount will be appropriated 
out of profits of a company. 5
Debenture Redemption Reserve
Debenture Redemption Reserve
       For Redemption best source is out of profits.  
There is an Institution called Securities Exchange 
Board of India. This body was exercising and 
controlling on this point.  It has told the company that 
you have to redeem the debentures only out of 
profits.
 
      One more thing that u must keep minimum 50% 
of amount which u have to redeem in a special 
account called Debenture Redemption Reserve.  This 
was what SEBI has directed before 2013 Companies 
Act. 
Read More
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FAQs on PPT - Issue and Redemption of Debentures - Accountancy Class 12 - Commerce

1. What are debentures?
Ans. Debentures are long-term debt instruments issued by companies to raise funds from the public. They are usually issued with a fixed interest rate and a specified maturity date. Debenture holders have a claim on the assets of the company in case of default.
2. How are debentures issued?
Ans. Debentures can be issued through a public issue or a private placement. In a public issue, the company offers debentures to the general public through a prospectus. In a private placement, debentures are offered to a specific group of investors like financial institutions, banks, or high net worth individuals.
3. What is the process of debenture redemption?
Ans. Debenture redemption is the process of repaying the principal amount to the debenture holders upon maturity. The company must create a Debenture Redemption Reserve (DRR) and transfer a certain percentage of its profits to this reserve every year until the redemption is complete. The company then repays the debenture holders their principal amount along with any outstanding interest.
4. What are the advantages of issuing debentures?
Ans. Issuing debentures has several advantages for companies. It allows them to raise long-term capital without diluting ownership or control. Debentures also provide tax benefits as interest payments are tax-deductible expenses. Additionally, debentures diversify the company's capital structure and can be attractive to investors seeking fixed income securities.
5. What is the difference between secured and unsecured debentures?
Ans. Secured debentures are backed by specific assets of the company, which serve as collateral in case of default. If the company fails to repay the debenture holders, they have a claim on the specified assets. On the other hand, unsecured debentures are not backed by any specific collateral. In case of default, the debenture holders have a claim on the general assets of the company. Secured debentures generally have a lower interest rate compared to unsecured debentures due to the reduced risk for investors.
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