Redemption of Debenture (Purchase of Own Debenture in Open Market) Video Lecture - Commerce

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hello friends let us continue with
redemption of debentures and we were
discussing about the various methods for
redemption of debentures right and we
discussed two methods method one lump
sum payment right and method two is
payment in installments by draw of lots
right in the first method the lump sum
payment is on maturity and the other
method we say we will redeem the
debentures in installments and to whom
the payment is to be made that will be
decided by draw of lots that is just
like a lucky draw right now in this
lecture we are going to start with the
third method redemption
by purchase of onda ventures from open
market right so this is one important
aspect where we are going to discuss the
redemption by purchase of own debentures
from open market right now say there is
a company a write company a issued
debentures of rupees 100 to whom to mr.
X so mr. X is the debenture holder of
company a he was issued debentures of
rupees 100 right now there is a feature
of these debentures that these
debentures are also freely transferable
right what happened mr. X transferred
these debentures of rupees 100 to mr. Y
right he transferred debentures r2p say
105 year and 5 rupees as profit so he
transferred the debentures of 105 to mr.
Y now what happens is there is a market
place where this trading of debentures
is carried out trading of debentures
that is where these debentures are
purchased and where the purchase and
sale of debenture takes place this is
the market place right clear here the
sale and purchase of debentures takes
place now what happens is missed
X keeps his debentures here mr. y sorry
mister why he has accounted this market
place where he has kept the debenture
documents right now what happened is in
the market the value of this debenture
market value of debenture comes down to
rupees 90 that means if you go in the
market to buy the debenture of Company A
you will have to pay 90 rupees right so
mister why I was having the debentures
of company a he has kept these
debentures at a market place where the
trading of debenture takes place sale
and purchase of debenture takes place
right and the market value of Company
Aged venture is 90 rupees now on the
date of redemption company a has to pay
this debenture holder how much rupees
Company A says I have to pay hundred
rupees right
yes company is Tom was that these
defenses are redeemable at par that is
they have to pay hundred rupees to
mister why because he is the debenture
holder clear instead of going to mister
why mr. X a sari company a plays a smart
game he goes to the market place he goes
to the market place in the market the
debenture of company a is available at
90 rupees now what the company does
company buys its own debentures company
buys its own debentures
from open market
right here the company bought the shares
from the open market right now it's
debenture liability is over it was to
pay 100 rupees but company a company a
bought back its debentures at 90 from
the open market
now this oh people in the open market
there are brokers in the open market who
deal with this these brokers will pay to
mr. Wai whatever the amount is decided
these brokers will pay to mr. why and
not company a the ultimate aim was
company a wants to discharge the
liability of the dimensions for that
instead of going to the debenture holder
company a bought its own debentures from
the open market right so what is
happening in this case is in case of
write down these notes in case of going
to the debenture holder to
discharge its dementia liability company
a
bias back its own debentures from open
market now see here the company a has
earned a profit of ten rupees
because if company a had approached the
debenture holder then company a would
have paid hundred rupees but now company
a has bought it shares sorry debentures
back from the market at rupees ninety
the market value right debentures from
open market this is possible
only if it is permitted by the articles
of the company so that means purchase of
debentures for the open market is
possible only if it is permitted by
articles of the company write articles
means the rules and regulations of the
company if they allow that you can
purchase your debentures from the open
market only then you can redeem the
debentures in this way clear only then
you can buy your own debentures from the
open market clear the concept is clear
the company instead of going to the
debenture holder to discharge its
liability to pay rupees hundred company
a goes to the open market he says there
he sees that is debentures value is
ninety rupees so he will earn a 10 rupee
profit company a played a smart game and
they bought its debentures right at
ninety rupees their liability is over
right then it is the liability of the
people sitting in the open market to pay
to mr. Wai that is their headache
company is out of picture then company a
was to pay hundred rupees instead it
paid ninety rupees and earned a profit
of ten rupees happy right so in case of
going to the debenture holder to
discharge its dementia liability company
a biased back its own debentures from
open market this is possible only if it
is permitted by the articles of the
company right right one more point
debentures
are freely transferable from one person
to other right
then another point before purchasing own
debentures before purchasing own
debentures conditions of drr that is 25
minimum 25 percent and DRI that is 15
percent must be fulfilled right but in
this case it says in question
until and unless otherwise specified
always is you that required d RR and DRI
balance has been maintained by the
company
right he says that you have to comply
with the conditions of drr and DRI but
if the question until and unless
otherwise specified you will always
assume that require DRI at DRR and DRI
balance has been maintained by the
company right so you will make this
assumption if the question specifically
says that you have to create DRI DRI in
this case only in the open market case
right if the question specifically
states that you have to create drr and
DRI
only then create drr and DRI otherwise
always assume that the required balance
has been maintained by the company you
can give a note to this effect after the
question right you can give a note to
this effect that it has been assumed
that required drr and DRI balance is
being maintained by the company clear
right now one important point last owned
debentures can be treated in two ways
that means you have bought your
debentures from the open market then
what to do with those debentures either
cancel those debentures immediately or
held those debentures as investment and
canceled later on right so when you have
bought your own debentures from the
market when you have bought your own
debentures from the market there are two
options you can do with those own
debentures one is you can cancel those
own debentures immediately can
immediately cancel those two ventures
now what are the journey how to cancel
those own debentures we will discuss in
the next lecture right I'll show you how
we cancel those debentures right
ultimately if we have issued 10%
debentures to a debenture holder we have
to cancel those debentures also we'll
discuss with the journal entries in the
next lecture right or either we can hold
those debentures as investments and
cancel later on right you can cancel at
a later date that is your wish normally
the debentures are cancelled immediately
right normally it happens when you have
bought your own debentures you cancel
the debentures immediately right how to
cancel those debentures how to pass the
journal entries that we will discuss in
the next lecture there are various cases
for that right if we talk about cancel
the debentures immediately in this we
have first two cases right that is
Redemption at par
that is original terms of redemption
were redeemable at par and redeemable at
premium then how to deal with this right
then in these again we have further
three cases own debentures bought equal
to nominal value bought at more than
nominal value or less than nominal value
so we'll discuss all this in the next
lecture right don't worry we are going
to discuss everything in the next
lecture in this lecture I have told you
the basic concept of onda ventures
buying onda ventures from the open
market that is company instead of going
to the debenture holder to discharge its
liability instead of giving hundred
rupees to the debenture holder company
goes to the market buys its own
debentures from the market at rupees
ninety and earn a profit of ten rupees
now the company is not required to pay
the debenture holder 100 rupees right
that open market people they will now
pay to mr. why that's it the company is
not required company has discharged its
liability company has bought Baggett's
debentures now debentures are no longer
with mr. via are in the open market
they're with the company right so
friends this is the concept of purchase
of own debentures redemption by purchase
of own debentures from open market right
and the next lecture will discuss about
the treatment of own debentures and
cancelation of owned Avengers right so
in this if you have any queries just
send me an e-mail at ksj teaching at the
rate of gmail.com right
so in the next lecture what we are going
to discuss about us cancellation of onda
ventures right so this is what we are
going to discuss in the next lecture so
that's all for this lecture friends
thank you so much