Issue and Redemption of Debentures
Class 12 Accountancy · Accountancy Part II · Chapter 2
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History
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History
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History
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Geography
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Geography
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Geography
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Home Science
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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.
Meaning and types of debenturesIssue at par, premium and discountDebentures for cash, other consideration and as collateralInterest and loss on issue of debenturesMethods of redemption of debentures
Key terms
Debenture
A written instrument under the company's common seal acknowledging a debt and promising repayment of principal and payment of interest at a fixed rate.
Secured Debentures
Debentures that create a charge on the assets of the company as security for repayment.
Convertible Debentures
Debentures that can be converted into shares of the company after a specified period as per the terms of issue.
Debentures as Collateral Security
Debentures issued as additional security for a loan, to be returned when the loan is repaid.
Loss on Issue of Debentures
The loss arising when debentures are issued at a discount or are redeemable at a premium, written off over time.
Redemption of Debentures
The repayment of the amount due on debentures, in a lump sum or by instalments, on or before maturity.
Extra questions & answers
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A debenture is: