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Summary of Issue of Debenture Video Lecture | Accounting for Grade 12

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FAQs on Summary of Issue of Debenture Video Lecture - Accounting for Grade 12

1. What is a debenture in commerce?
Ans. In commerce, a debenture is a type of long-term debt instrument that is issued by a company to raise funds. It is a written acknowledgment of debt that specifies the terms and conditions of the loan, including the interest rate, repayment schedule, and any security or collateral provided by the company.
2. How does a company issue debentures?
Ans. A company can issue debentures by following a formal process. Firstly, the company's board of directors needs to pass a resolution approving the issuance of debentures. Then, the company prepares a prospectus or offer document containing all the necessary information about the debentures and submits it to the regulatory authorities for approval. Once approved, the company can offer the debentures to investors through public or private placement.
3. What is the difference between secured and unsecured debentures?
Ans. Secured debentures are backed by specific assets of the company, which act as collateral in case of default. In contrast, unsecured debentures are not backed by any specific assets and rely solely on the creditworthiness of the company. In the event of default, secured debenture holders have a higher chance of recovering their investment compared to unsecured debenture holders.
4. Can a debenture be converted into shares?
Ans. Yes, some debentures come with an option of conversion into shares of the issuing company. These are known as convertible debentures. The conversion ratio and terms are mentioned in the debenture agreement. Upon exercise of the conversion option, debenture holders can convert their debentures into a predetermined number of shares, as per the agreed terms.
5. What are the risks associated with investing in debentures?
Ans. Like any investment, debentures also carry certain risks. The primary risk is the credit risk, which refers to the possibility of the issuing company defaulting on the repayment of principal or interest. Other risks include interest rate risk, where a change in interest rates can affect the value of the debentures, and liquidity risk, which arises when there is a lack of buyers in the market for the debentures. It is important for investors to carefully assess these risks before investing in debentures.
57 videos|79 docs|68 tests
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