Complete Summary and Solutions for Issue and Redemption of Debentures – NCERT Class XII Company Accounts, Chapter 2 – Meaning, Types, Issue, Redemption, Accounting Treatment, Journal Entries
Detailed summary and explanation of Chapter 2 'Issue and Redemption of Debentures' from the NCERT Class XII Company Accounts textbook, covering the concept and features of debentures, classification of debentures, procedures for issue at par, premium, discount, issue for consideration other than cash, collateral security, methods of redemption including lump sum, instalments, open market purchase, conversion into shares, debenture redemption reserve, interest on debentures, and journal entries with illustrations and exercises.
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Categories: NCERT, Class XII, Accountancy, Company Accounts, Chapter 2, Issue of Debentures, Redemption of Debentures, Types of Debentures, Accounting Entries, Summary, Questions, Answers
Tags: Issue of Debentures, Redemption of Debentures, Types of Debentures, Accounting for Debentures, Journal Entries, Debenture Redemption Reserve, Interest on Debentures, Collateral Security, NCERT, Class 12, Company Accounts, Summary, Explanation, Questions, Answers, Chapter 2
Issue and Redemption of Debentures - Class 12 Accountancy Chapter 2 Ultimate Study Guide 2025
Issue and Redemption of Debentures
Chapter 2: Accountancy - Ultimate Study Guide | NCERT Class 12 Notes, Questions, Proforma Examples & Quiz 2025
Full Chapter Summary & Detailed Notes - Issue and Redemption of Debentures Class 12 NCERT
Overview & Key Concepts
Chapter Goal: Companies raise long-term funds via debentures (debt instrument). Covers meaning, vs shares, types, issue (par/discount/premium), redemption basics. Exam Focus: Distinction table, types classification, journal entries (Ill 1-3), balance sheet presentation; 2025 Updates: Emphasis on convertible, zero-coupon. Fun Fact: Debenture from Latin 'debere' (to borrow). Core Idea: Borrowed capital with fixed interest. Real-World: Corporate bonds. Expanded: All subtopics point-wise with evidence (e.g., Ill 1), examples (e.g., ABC Ltd), debates (e.g., secured vs unsecured risks).
Wider Scope: From issue to redemption (tease later); sources: Pages 1-9, tables/figs.
Expanded Content: Include redemption tease; point-wise for recall; add 2025 relevance like green bonds.
Introduction & Expansion Need
Equity Limits: Shares inadequate; debentures for long-term debt via private/public.
Peculiarities: Acknowledges debt under seal; repayment + interest fixed. Sec 2(30) includes bonds/inventory.
Ill Tease: Par (9,000 deb, Rs.9L); Disc (10,000, Rs.50k write-off); Prem (2,000, Rs.20k reserve).
Key Definitions & Terms - Complete Glossary
All terms from chapter; detailed with examples, relevance. Expanded: 30+ terms grouped by subtopic; added advanced like "Sinking Fund", "Collateral Security" for depth/easy flashcards.
Deb as extra security. Ex: For loan. Relevance: Advanced issue.
Sinking Fund (Advanced)
For redemption. Ex: Investment pool. Relevance: Gradual repay.
Write-off Discount (Advanced)
Amortize loss. Ex: Via P&L. Relevance: 12 months current/other.
Tip: Group by types/issue; examples for recall. Depth: Debates (e.g., zero-coupon tax). Historical: Act 2013. Interlinks: To shares Ch1. Advanced: Redemption. Real-Life: Bond markets. Graphs: Types diagram. Coherent: Evidence → Interpretation. For easy learning: Flashcard per term with Ill snippet.
60+ Questions & Answers - NCERT Based (Class 12) - From Illustrations & Variations
Based on chapter + expansions (e.g., Ill 1-3). Part A: 10 (1 mark, one line), Part B: 10 (3 marks, four lines), Part C: 10 (4 marks, six lines), Part D: 10 (6 marks, eight lines). Answers point-wise in black text. Include proformas where apt.
Part A: 1 Mark Questions (10 Qs - Short)
1. Origin of 'debenture'?
1 Mark Answer:
Latin 'debere' (borrow).
2. Sec 2(30) includes?
1 Mark Answer:
Bonds, stock.
3. Return on debentures?
1 Mark Answer:
Interest (fixed).
4. Deb vs share: Ownership?
1 Mark Answer:
Debt vs equity.
5. Secured deb: Charge type?
1 Mark Answer:
Fixed/floating.
6. Redeemable: Repay?
1 Mark Answer:
After period.
7. Zero coupon: Interest?
1 Mark Answer:
Via discount.
8. Issue at par: Price?
1 Mark Answer:
= Face value.
9. Premium credited to?
1 Mark Answer:
Sec Prem Reserve.
10. Bearer transfer by?
1 Mark Answer:
Delivery.
Part B: 3 Marks Questions (10 Qs - Medium, Exactly 4 Lines Each)
1. List 3 distinctions shares vs deb.
3 Marks Answer:
Ownership: Equity vs debt.
Return: Dividend vs interest.
Repay: Permanent vs redeemable.
Ex: Voting yes vs no.
2. Differentiate secured vs unsecured.
3 Marks Answer:
Secured: Charge on assets.
Unsecured: No charge, rare.
Ex: Fixed vs naked.
Risk: Low vs high.
3. Explain redeemable deb.
3 Marks Answer:
Repay after period.
Lump/instalments, par/prem.
Ex: 5 years.
Common type.
4. What is convertible deb?
3 Marks Answer:
To equity shares option.
Full/part.
Ex: At holder choice.
Hybrid security.
5. Define zero coupon deb.
3 Marks Answer:
No explicit interest.
Issued at discount.
Ex: Diff as interest.
Compensates investors.
6. Purpose of registered deb.
3 Marks Answer:
Track holders in register.
Transfer by deed.
Ex: Names/addresses.
Safer transfer.
7. 3 types by security.
3 Marks Answer:
Mortgage (fixed).
Floating charge.
Unsecured/naked.
Ex: Assets charge.
8. Differentiate fixed vs floating charge.
3 Marks Answer:
Fixed: Specific asset.
Floating: General assets.
Ex: Plant vs inventory.
Not for sale vs all.
9. Issue at discount: Treatment?
3 Marks Answer:
Below face value.
Discount A/c Dr.
Ex: Write-off P&L.
12 months current.
10. Premium in BS?
3 Marks Answer:
> Face value.
Sec Prem Reserve.
Ex: Reserves surplus.
Liabilities side.
Part C: 4 Marks Questions (10 Qs - Medium-Long, Exactly 6 Lines Each)
1. Explain 4 types by tenure/convert.
4 Marks Answer:
Redeemable: After period.
Irredeemable: Perpetual.
Convertible: To shares.
Non-convert: Pure debt.
Ex: Full/part conv.
Most non-conv.
2. Distinguish shares vs deb (4 points).
4 Marks Answer:
Return: Var div vs fixed int.
Repay: No vs yes.
Voting: Yes vs no.
Security: Un vs secured.
Ex: Charge on profits.
Convert: No vs yes.
3. Describe issue at par entries.
4 Marks Answer:
Bank Dr to App.
App Dr to Deb.
Allot Dr to Deb.
Bank to Allot.
Ex: Ill 1 ABC.
Two instalments.
4. Explain discount write-off.
4 Marks Answer:
Allot Dr + Disc Dr to Deb.
Write-off: P&L/Sec Prem Dr to Disc.
Ex: Ill 2 TV 5%.
12 months: Current/other.
Act no restriction.
BS non-current.
5. Journal for premium issue.
4 Marks Answer:
Bank Dr to App.
App Dr to Deb.
Allot Dr to Deb + Sec Prem.
Bank to Allot.
Ex: Ill 3 XYZ Rs.10.
Reserves surplus.
6. Types by coupon (2 types).
4 Marks Answer:
Specific: Fixed/floating (bank tag).
Zero: No coupon, discount diff interest.
Ex: 12% half-yearly.
Investor compensation.
Most specific.
Deep discount var.
7. Bearer vs registered (3 points).
4 Marks Answer:
Bearer: Delivery transfer.
Registered: Deed, company record.
Interest: Coupon vs register.
Ex: No holder track vs yes.
Risk: High vs low.
Common: Registered.
8. Why debentures issued?
4 Marks Answer:
Long-term funds beyond shares.
Private/public route.
Ex: Prospectus application.
Fixed interest charge.
No voting dilution.
Secured appeal.
9. Ill 1: ABC entries key?
4 Marks Answer:
App Rs.30: Bank to App.
Transfer to Deb.
Allot Rs.70: Allot to Deb.
Bank to Allot.
9,000 deb fully sub.
BS: 9L borrowings.
10. Discount in BS?
4 Marks Answer:
Write-off within 12 m: Current assets.
After: Non-current other.
Ex: Ill 2 Rs.50k P&L.
Net cash Rs.9.5L.
Deb Rs.10L liab.
Presume 10 yr redeem.
Part D: 6 Marks Questions (10 Qs - Long, Exactly 8 Lines Each)
1. Explain meaning & 6 distinctions vs shares.
6 Marks Answer:
Meaning: Debt under seal, repay + int.
Sec 2(30): Bonds etc.
Dist: Own (eq vs debt), Ret (div vs int), Repay (perm vs red), Vote (yes vs no).
Sec (un vs sec), Conv (no vs yes).
Ex: Interest even loss.
Charge vs approp.
Table basis.
Debt cheaper.
2. Describe 5 types classifications with ex.
6 Marks Answer:
Security: Sec (fixed/float) vs Unsec.
Ex: Charge on plant.
Tenure: Red (lump) vs Irred (perp).
Convert: Conv (full) vs Non-conv.
Coupon: Spec (12%) vs Zero (disc).
Reg: Reg (deed) vs Bearer (del).
Diagram basis.
Most: Sec, red, non-conv.
3. Explain issue at par with entries (Ill 1).
6 Marks Answer:
Par: = Face, one/two inst.
Entries: Bank Dr App (Rs.2.7L), App Dr Deb.
Allot Dr Deb (Rs.6.3L), Bank Allot.
Ex: ABC 9k deb Rs.30 app, Rs.70 allot.
BS: 9L long borrow, 9L cash.
Notes: 12% Rs.100 each.
Calls if more inst.
Prospectus basis.
4. Journal & BS for discount issue (Ill 2).
6 Marks Answer:
Disc: < Face, Disc Dr.
Entries: Bank App Rs.4L, App Deb.
Allot Dr Rs.5.5L + Disc 0.5L to Deb 6L, Bank Allot.
Write: P&L Dr Disc.
Ex: TV 10k 5% disc, Rs.40 app Rs.55 allot.
BS: 10L deb, (0.5L) P&L, 9.5L cash.
10 yr presume.
No Act restrict.
5. Premium issue process (Ill 3).
6 Marks Answer:
Prem: > Face, Sec Prem Cr.
Entries: Bank App Rs.1L, App Deb.
Allot Dr Rs.1.2L to Deb 1L + Prem 0.2L, Bank Allot.
Ex: XYZ 2k Rs.10 prem, Rs.50 app Rs.60 allot.
BS: 2L borrow, 0.2L reserve, 2.2L cash.
Reserves surplus.
Boost equity.
Fully sub.
6. Full types table explanation.
6 Marks Answer:
Security: Sec/Unsec/Mortgage/Naked.
Tenure: Red/Perp.
Redemp: At par/prem.
Convert: Full/part/Non/Zero coupon.
Coupon: Spec/Deep disc.
Reg: Reg/Bearer.
Ex: Diagram flow.
Classify issue.
7. Procedure for deb issue.
6 Marks Answer:
Prospectus to investors.
App/allot/calls like shares.
Par/disc/prem.
Ex: Cash/other/collateral.
Entries per inst.
BS long borrow.
Private/public.
Fixed int payable.
8. Why secured preferred? Implications.
6 Marks Answer:
Charge on assets default pay.
Fixed: Specific, float: General.
Ex: Not for sale assets.
Risk: Low for holders.
Cost: Lower rate.
Vs unsec high risk.
Evidence: Types.
Unsec rare.
9. Role of Act 2013 in deb issue.
6 Marks Answer:
Sec 2(30): Broad def.
No disc restrict.
Charge optional.
Ex: Convertible terms.
Interest half-yearly.
Evidence: No voting.
Subject agreement.
Fair debt base.
10. BS presentation for issue.
6 Marks Answer:
Long borrow: Deb face.
Reserves: Prem/P&L (disc).
Cash: Received net.
Ex: Ill 1 9L deb/cash.
Disc: Current/non-cur.
Notes: % rate, redeem.
2025: 10 yr presume.
Relevant only.
Tip: Include proformas in ans; practice entries. Additional 30 Qs: Variations on Ill, types scenarios.
Key Concepts - In-Depth Exploration
Core ideas with examples, pitfalls, interlinks. Expanded: All concepts with steps/examples/pitfalls for easy learning. Depth: Debates, analysis.
Advanced: Sinking fund, write-off methods. Pitfalls: Wrong charge. Interlinks: To Ch3. Real: Bond issuance. Depth: 14 concepts details. Examples: Ill. Graphs: Types. Errors: Prem Dr. Tips: Steps evidence; compare tables (shares vs deb).
Proforma Examples & Tables - From Text with Simple Explanations
Expanded with evidence, analysis; focus on proformas. Added variations for practice.
Example 1: Journal Entries - Issue at Par (Ill 1 ABC Ltd)
Simple Explanation: Two instalments; full subscription.
Date
Particulars
Dr (Rs.)
Cr (Rs.)
Bank Dr to Deb App (Rs.30 x 9000)
2,70,000
2,70,000
Deb App Dr to Deb
2,70,000
2,70,000
Deb Allot Dr to Deb (Rs.70 x 9000)
6,30,000
6,30,000
Bank Dr to Deb Allot
6,30,000
6,30,000
Step 1: Receive app.
Step 2: Transfer/adjust.
Step 3: Allot due/receive.
Simple Way: Net deb Rs.9L.
Example 2: Balance Sheet - Par Issue (Ill 1)
Simple Explanation: Relevant portions; notes.
Particulars
Note
Amount (Rs.)
I. Equity & Liab
Non-cur Liab: Long Borrow
1
9,00,000
II. Assets: Cash Equiv
2
9,00,000
Notes: 1. 9000 12% Deb Rs.100
9,00,000
2. Cash at bank
9,00,000
Step 1: Borrow liab.
Step 2: Cash asset.
Step 3: Notes detail.
Simple Way: Balanced.
Example 3: Journal - Issue at Discount (Ill 2 TV Ltd)
Simple Explanation: 5% disc; write-off.
Date
Particulars
Dr (Rs.)
Cr (Rs.)
Bank Dr to Deb App (Rs.40 x 10000)
4,00,000
4,00,000
Deb App Dr to Deb
4,00,000
4,00,000
Deb Allot Dr 5,50,000 + Disc 50,000 to Deb 6,00,000
6,00,000
6,00,000
Bank Dr to Deb Allot (Rs.55 x 10000)
5,50,000
5,50,000
P&L Dr to Disc (write-off)
50,000
50,000
Step 1: App receive.
Step 2: Allot + disc.
Step 3: Write P&L.
Simple Way: Net cash 9.5L.
Example 4: BS - Discount Issue (Ill 2)
Simple Explanation: P&L debit; 10 yr.
Particulars
Note
Amount (Rs.)
I. Eq & Liab: Reserves Surplus
1
(50,000)
Non-cur Liab: Long Borrow
2
10,00,000
II. Assets: Cash Equiv
3
9,50,000
Notes: 1. P&L bal
(50,000)
2. 10000 12% Deb Rs.100
10,00,000
3. Bank
9,50,000
Step 1: Surplus neg.
Step 2: Borrow face.
Step 3: Cash net.
Simple Way: Disc impact.
Example 5: Journal - Premium (Ill 3 XYZ)
Simple Explanation: Rs.10 prem; two inst.
Date
Particulars
Dr (Rs.)
Cr (Rs.)
Bank Dr to Deb App (Rs.50 x 2000)
1,00,000
1,00,000
Deb App Dr to Deb
1,00,000
1,00,000
Deb Allot Dr to Deb 1,00,000 + Sec Prem 20,000
1,20,000
1,20,000
Bank Dr to Deb Allot (Rs.60 x 2000)
1,20,000
1,20,000
Step 1: App.
Step 2: Allot split.
Step 3: Receive.
Simple Way: Prem reserve.
Example 6: Types of Debentures Table
Simple Explanation: Classification diagram.
Security
Tenure
Redemption
Coupon
Registration
Sec/Unsec
Red/Perp
At par/prem
Spec/Zero
Reg/Bearer
Mortgage/Naked
Fixed/Float
Full/Part Conv
Step 1: Classify basis.
Step 2: Choose type.
Step 3: Issue terms.
Simple Way: 5 views.
Tip: Practice proformas; troubleshoot (e.g., disc write). Added for issues, types.
Interactive Quiz - Master Debentures Basics
10 MCQs in full sentences; 80%+ goal. Covers meaning, types, issue methods.
Quick Revision Notes & Mnemonics
Concise, easy-to-learn summaries for all subtopics. Structured in tables for quick scan: Key points, examples, mnemonics. Covers meaning, distinctions, types, issue. Bold key terms; short phrases for fast reading.
Subtopic
Key Points
Examples
Mnemonics/Tips
Meaning
Def: Debt seal, repay + fixed int (Sec 2(30)).
Bond interchangeable.
12% Rs.100 deb.
DSRI (Debt Seal Repay Interest). Tip: "Debts Seal Repayments with Interest" – Borrow basics.
Shares vs Deb
6 Dist: Own (eq/debt), Ret (div/int), Repay (perm/red), Vote (y/n), Sec (un/sec), Conv (n/y).
Overall Tip: Use DSRI-ORRVSC-STCCR-PAD-LRA-FS for full scan (5 mins). Flashcards: Front (term), Back (points + mnemonic). Print table for wall revision. Covers 100% chapter – easy for exams!
Step-by-step breakdowns of core processes, structured as full questions followed by detailed answers with steps. Visual descriptions for easy understanding; focus on actionable Q&A with examples from chapter.
