Chapter 2: Issue and Redemption of DebenturesClass 12 Accountancy — summary, notes, extra questions & MCQ quiz

Summary

A debenture is a written instrument acknowledging a debt under the common seal of the company, containing a contract to repay the principal after a specified period and to pay interest at a fixed rate. The word comes from the Latin debere, meaning to borrow, and finance raised through debentures is long-term debt. Section 2(30) of the Companies Act 2013 says the term includes debenture stock, bonds and other securities, whether or not they create a charge on the company's assets. Debentures differ from shares: a debenture holder is a creditor, not an owner; interest is a charge against profit; and debentures are usually secured and redeemable. They may be classified on the basis of security, convertibility, permanence, negotiability and priority. Debentures can be issued at par, at a premium or at a discount, and for cash or for consideration other than cash; they may also be issued as collateral security for loans. The terms of redemption may differ from the terms of issue, giving rise to loss on issue of debentures. The chapter explains the accounting for the issue of debentures under various terms, the writing-off of discount or loss on issue, interest on debentures, and their redemption in a lump sum or by instalments out of the proceeds available.

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