Class 12 Accountancy Part 2 Chapter 2: Issue and Redemption of Debentures

Understanding Debentures

The term 'debenture' originates from the Latin word 'debere', meaning to borrow. Essentially, a debenture is a formal written acknowledgment of a debt, issued under the company's common seal. It includes a contract for the repayment of the principal sum at a specified date or upon demand of the company, as well as a fixed interest rate, usually payable annually on pre-determined dates. As per section 2(30) of The Companies Act, 2013, 'Debenture' includes Debenture Stock, Bonds, and any other securities of a company, whether constituting a charge on the company's assets or not.

Now, let's delve deeper into the topic of Issue and Redemption of Debentures:

• Differences between Shares and Debentures
• Various Types of Debentures
• The Process of Issuing Debentures
• Over-Subscription of Debentures
• Issue of Debentures for Non-cash Consideration
• Debentures as Collateral Security
• Terms of Debenture Issues
• Interest Payments on Debentures
• Writing off Discount/Loss on Debenture Issues
• Redeeming Debentures

What Does Issuing Debentures Mean?

The process of issuing debentures is akin to issuing shares by a company. The funds can be raised either in one go or in installments. The accounting treatment for both is very similar. Debentures can be issued for cash or for other considerations. Sometimes, debentures are issued as collateral security.

How Are Debentures Redeemed?

The redemption of debentures means the repayment of the debenture capital to the debenture holders or investors by the company. This action effectively clears the company's liability and removes it from the Balance Sheet. This is a significant transaction for the company since it often involves a substantial amount of money.

The above discussion provides a detailed overview of the Issue and Redemption of Debentures for Class 12 Commerce students. For more such insightful content, stay tuned.