The terms debentures and bonds ar e now being used inter changeably. We hope the ncert solutions for class 12 accountancy part ii chapter 2 issue and redemption of debentures, help you. Ncert solutions for class 12 commerce accountancy chapter 2 issue and redemption of debentures. Introduction the word debenture has been derived from the latin word which means borrow. Difference between premium on issue of debentures and. Company debenture is one of the important sources of finance for large companies, in addition to equity stocks, bank loans, and bonds. Debentures enhances the earnings of equity holders through the operation of financial leverage. Bond is also an instrument of acknowledgement of debt. Securities premium the increase in securities premium will be added to no treatment is required,it should be ensured that amount of decrease in securities premium the face value of debenturesshares issued. Debenture is an instrument under which the company gets the power of raising the loan capital. Debentures in the general course of business are issued for cash.
Companies need to follow certain procedures for issue of debentures to raise money. On 1st may 2011, the company purchased 300 own debentures at rs. Debenture is like a certificate of a loan which acts as the evidence of the fact that the company is liable to pay the specific amount with the interest and that person becomes the part of a companys capital. Methods of redemption of debentures following are the methods of redeeming the debentures. There is, however, nothing to prevent a company from treating this premium as a revenue profit and. By creation of debenture redemption fund or sinking fund. Some things to consider when investing in debentures credit risk of the issuer. By creation of debenture redemption fund or sinking fund 2. Debentures provides longterm finance to company on easy and cheap terms. Ncert class 12 accountancy issue and redemption of. When debentures are redeemed at par, journal entries are.
Debenture redemption reserve is a very well known term in the reference of debentures. Set aside the amount of profit at the end of each year and. But this condition will be relaxed for capital intensive projects. Redemption of debentures means payment of the amount of debentures by the company. When debentures are redeemed, liability on account of debentures is discharged.
If you have any query regarding ncert solutions for class 12 accountancy part ii chapter 2 issue and redemption of debentures, drop a comment below and we will get back to you at the earliest. Introduction a debenture is an instrument issued by a company under its seal, acknowledging a debt and containing provisions as regards repayment of the principal and interest. The focus is on the effect of common law principles and the application of s 1051 of the corporations law. It is only one of the methods of raising the loan capital of the company. Normally, the amount of shares is not returned during the life of the company, whereas, generally, the debentures are issued for a. A debenture is an instrument of debt executed by the company acknowledging its obligation to repay the sum at a specified rate and also carrying an interest. Give journal entries at the time of issue and redemption of debentures if debentures are to be redeemed in lump sum at the end of 4th year. Issue and redemption of debentures 2 prashanth ellina. It may be noted that this method is applicable only to convertible debentures. The principal amount of such debentures is paid off to the debenture holders on the expiry of such period.
Free video ca cpt redemption of preference share and issue. Traditionally, the government issued bonds, but these days, bonds are also being issued by semigovernment and nongovernmental organisations. Preference shares are issued by a company to owners of the company with preferential rights on payment of dividend and payout at the time of liquidation. Ways to redeem debentures lump sum payment, installments. Record necessary journal entries regarding issue and redemption of debentures. Issue and redemption of debentures journal entries youtube. Debenture includes debenture stock, bonds or any other securities of a company whether constituting a charge on the asseets of the com. Interest on debentures is payable half yearly on 30th june and 31st december. In this article we will discuss about the redemption of debentures.
They can also be issued for consideration other than cash or as a collateral security. Issue and redemption of preference shares aishmghrana. Redemption of debentures sinking fund method the steps involved in the working of sinking fund method are. Class12 cbse board redemption of debentures 1 learnnext offers animated video lessons with neatly explained examples, study material, free ncert solutions, exercises and tests. So let us take a look at all three and their respective accounting entries as well. Debentures, respectively, for public distribution with restricted placement and distribution efforts, pursuant to cvm instruction 476 of january 16, 2009, as amended. Debentures redemptionmaturity date on completion of five 05 years from allotment date or on such earlier date on which the debentures are redeemed or become payable in terms of the trust deed, clause 10. The investor should consider the ratio in which debt is used to finance projects and capital compared to that used for. The resulting proceeds will be utilized to finance investments in the companys projects and the remaining balance will be used to strengthen working capital. By investing in a debenture, you are lending your money to a business, with all the risks that this involves. The ideal method is to set aside every year a certain sum. Debentures cash from financing activities it means redemption of debentures and treated as cash used in financing activities. Calculate the amount of profit to be setaside annually with the help of sinking fund table. In depressed market conditions debentures plays an important role in providing a good source of finance for a company and is beneficial to the investors.
The company withholds a part of divisible profits for redeeming the debentures. Here we are providing information pertaining to redemption of debentures. The companies act has not laid down any conditions for the redemption of debentures. Download ncert class 12 accountancy issue and redemption of debentures 2 ncert book and other cbse kvs accountancy latest books free in pdf format chapter wise, ncert class 12 accountancy issue and redemption of debentures 2. A share represents ownership of the company whereas a debenture is only acknowledgement of debt. Debtequity ratio in issue of debentures should not exceed 2. All the debentures are redeemed on the redemption date specified in the terms of issue, i. Record necessary journal entries for the above transactions relating to transfer of debenture redemption serve on redemption of debentures. To provide necessary funds for the discharge of debentures, the company may adopt any of the following courses. On the basis of redemption i redeemable debentures. These debentures are issued for a specified period of time. These are the debentures which are issued for a fixed period. Class 12 cbse board redemption of debentures 1 videos. Redemption of debentures redemption of debentures notes.
But the funds raised by the issue of shares are seldom adequate. A debenture redemption reserve is a provision that was added to the indian companies act of 1956 during an amendment in the year 2000. This reserve is built by transferring some part of the profits in this reserve every year. Amount of funds required for redemption of debentures is quite large and, therefore, prudent companies make sufficient provision out of profits and accumulate funds to redeem debentures. A debenture redemption reserve is a provision that states that any indian company that issues debentures must create a debenture redemption. Definition,type and issue of debentures caclubindia. Intro to convertible debentures the cash payback period is the number of years it takes for the dollar premium to be recovered through the yield pickup of the debenture. What is meant by redemption of debentures by purchase of. It is always easy to arrange smaller fund every year than arranging a lot of funds at a particular point. Chapter 2 issue and redemption of debentures learn cbse. Show by means of journal entries how you will record the following issues. Ignore entries relating to interest paid on debentures. On the expiry of that specified time the company has the right to pay back the debenture holders and have its properties released from the mortgage or charge. Issue and redemption of debentures types of debentures.
Under this method, a certain portion of the total debentures is redeemed every year over the lifetime of the debentures and thus at the end of the life time of the debentures, the debentures are fully redeemed. A debenture is thus like a certificate of the loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest. This issue of debentures that happens can be of three kinds, just like an issue of shares, at par, at a discount, and at a premium. Issue and redemption of debentures 77 or at a discount. The redemption of debentures will commence on april1, 2003. Installment methods of redemption of debenture accounting. A company raises its capital by means of issue of shares. Any redemption of debentures will not commence before 7 years since the commencement of the company. Issue of debentures should not exceed more than 20% of gross current assets and also loans and advances. Pdf ncert solutions for class 12 accountancy part ii.
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