Commerce Exam > Commerce Videos > Issue of Debentures
Issue of Debentures Video Lecture - Commerce
FAQs on Issue of Debentures Video Lecture - Commerce
| 1. What is a debenture in commerce? |  |
Ans. A debenture in commerce refers to a type of long-term debt instrument issued by a company or government entity to raise funds from the public. It is a form of loan taken by the issuer, which promises to repay the principal amount along with interest at a specified future date.
| 2. How are debentures different from shares? | |
Ans. Debentures and shares are both financial instruments used for raising funds, but they have distinct differences. Debentures represent debt, while shares represent equity. Debenture holders are creditors of the company and have no ownership rights, whereas shareholders are owners of the company. Additionally, debenture holders receive fixed interest payments, while shareholders receive dividends based on company profits.
| 3. What are the advantages of investing in debentures? | |
Ans. Investing in debentures offers several advantages. Firstly, debentures provide a fixed income stream in the form of regular interest payments, which can be attractive for conservative investors. Secondly, debenture holders have a priority claim over company assets in case of bankruptcy or liquidation. Lastly, debentures can be traded in the secondary market, allowing investors to sell their holdings if needed.
| 4. What are the risks associated with debenture investments? | |
Ans. There are certain risks involved in debenture investments. One major risk is the credit risk, where the issuer may default on interest payments or fail to repay the principal amount. Market risk is another concern, as the value of debentures may fluctuate based on changes in interest rates. Additionally, liquidity risk can arise if the debentures are not easily tradable in the secondary market.
| 5. How can an investor assess the creditworthiness of a debenture issuer? | |
Ans. To assess the creditworthiness of a debenture issuer, investors can consider various factors. One important factor is the credit rating assigned by reputable credit rating agencies. Higher ratings indicate lower credit risk. Investors can also analyze the financial health and performance of the issuer, including factors such as profitability, cash flow, and leverage ratios. Additionally, reviewing the issuer's track record and reputation in the market can provide insights into their ability to meet their debt obligations.
Text Transcript from Video
issue of debentures debentures may be
issued for cash debentures may be issued
for consideration other than cash so if
a company were to buy another business
or purchase some essence instead of
paying cash they may issue the ventures
dimensions may also be issued as
collateral security so we will discuss
each of these scenarios one by one let
us first take the ventures issued for
cash the ventures may be issued at par
Premium or discount which means if the
just like in the case of shares
if the face value of the debenture is
rupees 100 it may be issued at rupees
100 that is part it may be issued at
rupees 110 that is issued at the premium
or it may be issued at rupees may be 95
which means at a discount of rupees 5
this is a premium of to be step this is
at par when a debenture is issued for a
premium it means you've issue a
debenture with a face value of 100 but
we get rupees 110 the 10 rupees
securities premium is called securities
premium just like the premium on equity
shares is also secured this premium and
that is a capital profit so issuing
debentures at a premium the securities
premium is a profit for the company when
the ventures are issued at a discount it
means a 100 rupee debenture is given to
the dimension holder but we get only or
raise only rupees 95 so that rupees 5
the laws so premium is a capital profit
whereas discount is a capital loss
discount on issue at the time of issue
of dimensions the terms of redemption
are also specified so redemption would
be at the particularly after a
particular period of time and such
redemption again may be at par at
premium or at a discount at par would be
that the rupees hundred dementia is
being repaid for rupees hundred if a
debenture is being redeemed at a premium
what does it mean it means that a
debenture with the face value of say 100
the debenture holder would be paid the
company would have to pay the debenture
holder say rupees 100 in 10 if the
premium on redemption is 10% so the
company pays more than the face value
repays more than the face value of the
debenture that would be a loss so
premium on redemption becomes a capital
loss similarly if Redemption were at a
discount this does not normally happen
in practice 100 rupee debentures would
rarely be redeemed for 95 but suppose it
were what does it mean that a hundred
per our debenture with a face value of
100 the company would repay only 95
therefore this is like a profit for the
company since the company has to retake
only mind if I against a liability of
100 this becomes a profit a capital
profit
so if you notice premium on issue is a
capital
of it but the premium on Redemption is a
capital loss similarly a discount on
issue of debentures is a capital loss
because a debenture of 100 rupees is
being issued for nearly 90 on the other
hand if there is a discount on
redemption of des ventures that discount
would represent a capital profit since
at the time the terms of issue itself
contain how the debentures are going to
be redeemed whether that power premium
of discount we often make provision for
loss which we expect in future we
consider this terms of redemption at the
time of issue itself we will discuss
this in a while but at this point that
is also quickly understand underwriting
commission since an issue of share or an
issue of aventures is usually underrated
who is an underwriter under Leiter is a
person who guarantees that the issue
will be fully subscribed what the
underwriter says is that this issue will
be subscribed fully subscribe and if it
is not fully subscribed then the
underwriter will take the shares or the
dimensions whatever security is being
offered to the public which is not taken
by the public will be taken up by the
underwriter therefore he guarantees that
the issue will be fully subscribed for
this he charges a commission for taking
on this risk of uncertainity the
underwriter gets a commission as per the
companies had the maximum amount of
underwriting commission for issue of
shares is 5% why for
ventures it is 2.5 percent so
underwriting commission should be lower
or equal to 5% for the issue of shares
and lower than equal to 2.5 percent are
an issue of Aventuras as per the
Companies Act
with this information let us look at the
accounting entries for debentures when
they are issued at our premium or
discount and also contain the terms of
production
issued for cash debentures may be issued
for consideration other than cash so if
a company were to buy another business
or purchase some essence instead of
paying cash they may issue the ventures
dimensions may also be issued as
collateral security so we will discuss
each of these scenarios one by one let
us first take the ventures issued for
cash the ventures may be issued at par
Premium or discount which means if the
just like in the case of shares
if the face value of the debenture is
rupees 100 it may be issued at rupees
100 that is part it may be issued at
rupees 110 that is issued at the premium
or it may be issued at rupees may be 95
which means at a discount of rupees 5
this is a premium of to be step this is
at par when a debenture is issued for a
premium it means you've issue a
debenture with a face value of 100 but
we get rupees 110 the 10 rupees
securities premium is called securities
premium just like the premium on equity
shares is also secured this premium and
that is a capital profit so issuing
debentures at a premium the securities
premium is a profit for the company when
the ventures are issued at a discount it
means a 100 rupee debenture is given to
the dimension holder but we get only or
raise only rupees 95 so that rupees 5
the laws so premium is a capital profit
whereas discount is a capital loss
discount on issue at the time of issue
of dimensions the terms of redemption
are also specified so redemption would
be at the particularly after a
particular period of time and such
redemption again may be at par at
premium or at a discount at par would be
that the rupees hundred dementia is
being repaid for rupees hundred if a
debenture is being redeemed at a premium
what does it mean it means that a
debenture with the face value of say 100
the debenture holder would be paid the
company would have to pay the debenture
holder say rupees 100 in 10 if the
premium on redemption is 10% so the
company pays more than the face value
repays more than the face value of the
debenture that would be a loss so
premium on redemption becomes a capital
loss similarly if Redemption were at a
discount this does not normally happen
in practice 100 rupee debentures would
rarely be redeemed for 95 but suppose it
were what does it mean that a hundred
per our debenture with a face value of
100 the company would repay only 95
therefore this is like a profit for the
company since the company has to retake
only mind if I against a liability of
100 this becomes a profit a capital
profit
so if you notice premium on issue is a
capital
of it but the premium on Redemption is a
capital loss similarly a discount on
issue of debentures is a capital loss
because a debenture of 100 rupees is
being issued for nearly 90 on the other
hand if there is a discount on
redemption of des ventures that discount
would represent a capital profit since
at the time the terms of issue itself
contain how the debentures are going to
be redeemed whether that power premium
of discount we often make provision for
loss which we expect in future we
consider this terms of redemption at the
time of issue itself we will discuss
this in a while but at this point that
is also quickly understand underwriting
commission since an issue of share or an
issue of aventures is usually underrated
who is an underwriter under Leiter is a
person who guarantees that the issue
will be fully subscribed what the
underwriter says is that this issue will
be subscribed fully subscribe and if it
is not fully subscribed then the
underwriter will take the shares or the
dimensions whatever security is being
offered to the public which is not taken
by the public will be taken up by the
underwriter therefore he guarantees that
the issue will be fully subscribed for
this he charges a commission for taking
on this risk of uncertainity the
underwriter gets a commission as per the
companies had the maximum amount of
underwriting commission for issue of
shares is 5% why for
ventures it is 2.5 percent so
underwriting commission should be lower
or equal to 5% for the issue of shares
and lower than equal to 2.5 percent are
an issue of Aventuras as per the
Companies Act
with this information let us look at the
accounting entries for debentures when
they are issued at our premium or
discount and also contain the terms of
production
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Dec 28, 2024 Last updated |
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