PPT - Redemption of Debentures | Accountancy Class 12 - Commerce PDF Download

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1 Redemption of Debentures
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1 Redemption of Debentures 2 Redemption of debenture • Redeemable debenture will be redeemed on 
or before a specified date which is stated 
clearly in the terms of the issue of 
debentures 
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1 Redemption of Debentures 2 Redemption of debenture • Redeemable debenture will be redeemed on 
or before a specified date which is stated 
clearly in the terms of the issue of 
debentures 3 In order to provide the funds to finance the redemption of debentures, the company may use the money from the following resources: (I)   The balance of existing cash and bank account (II) The money received from the fresh issue of shares (III) or debentures for the purpose of the redemption
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1 Redemption of Debentures 2 Redemption of debenture • Redeemable debenture will be redeemed on 
or before a specified date which is stated 
clearly in the terms of the issue of 
debentures 3 In order to provide the funds to finance the redemption of debentures, the company may use the money from the following resources: (I)   The balance of existing cash and bank account (II) The money received from the fresh issue of shares (III) or debentures for the purpose of the redemption 4 Debenture Redemption Reserve • If the company is unable to redeem its debentures by 
issuing new shares to raise necessary funds, the 
company should create Debenture Redemption Reserve 
account for redeeming the debentures • Equal to the cash used in redemption might be 
voluntarily transferred to a debenture redemption 
reserve fund from profit and loss account as a matter of 
financial prudence • The debenture redemption reserve is then identified as 
not being available for dividend distribution • The voluntary appropriation of profit to “Debenture 
Redemption Reserve” ensures that the resources of the 
company are not disadvantageously reduced 
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1 Redemption of Debentures 2 Redemption of debenture • Redeemable debenture will be redeemed on 
or before a specified date which is stated 
clearly in the terms of the issue of 
debentures 3 In order to provide the funds to finance the redemption of debentures, the company may use the money from the following resources: (I)   The balance of existing cash and bank account (II) The money received from the fresh issue of shares (III) or debentures for the purpose of the redemption 4 Debenture Redemption Reserve • If the company is unable to redeem its debentures by 
issuing new shares to raise necessary funds, the 
company should create Debenture Redemption Reserve 
account for redeeming the debentures • Equal to the cash used in redemption might be 
voluntarily transferred to a debenture redemption 
reserve fund from profit and loss account as a matter of 
financial prudence • The debenture redemption reserve is then identified as 
not being available for dividend distribution • The voluntary appropriation of profit to “Debenture 
Redemption Reserve” ensures that the resources of the 
company are not disadvantageously reduced 5 Premium on Redemption of 
Debentures • An amount equals “Premium on Redemption” will 
be transferred from Share Premium account to 
Debenture Redemption account • If it is not covered by Share Premium account, the 
balance will be transferred from Profit and Loss 
account Redeemed price of debentures - Par value of Debentures = Premium on Redemption