NCERT Class 12 Books Accountancy Part 2 Chapter 2- Issue and Redemption of Debentures

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You may learn about Chapter 2 of the NCERT Accountancy Part 2  Class 12 Books, "Issue and Redemption of Debentures," here. Additionally, you may find download links for the previous chapters.
 

Issue and Redemption of Debentures Goes Like This-

LEARNING OBJECTIVES

After studying this chapter you will be able to-

• State the meaning of debenture and explain the difference between debentures and shares
• Describe various types of debentures; • record the journal entries for the issue of debentures at par, at a discount and at premium.
• Explain the concept of debentures issued for consideration other than cash and the accounting thereof.
• Explain the concept of issue of debentures as a collateral security and the accounting thereof.
• Record the journal entries for issue of debentures with various terms of issue, terms of redemption.
• Show the items relating to issue of debentures in company’s balance sheet
• Describe the methods of writing-off discount/loss on issue of debentures.
• Explain the methods of redemption of debentures and the accounting thereof.
• Explain the concept of sinking fund, its use for redemption of debentures and the accounting thereof.

A company raises its capital by means of issue of shares. But the funds raised by the issue of shares are seldom adequate to meet their long term financial needs of a company. Hence, most companies turn to raising long-term funds also through debentures which are issued either through the route of private placement or by offering the same to the public. The finances raised through debentures are also known as long-term debt. This chapter deals with the accounting treatment of issue and redemption of debentures and other related aspects. 

SECTION I

2.1 Meaning of Debentures

Debenture: The word ‘debenture’ has been derived from a Latin word ‘debere’ which means to borrow. Debenture is a written instrument acknowledging a debt under the common seal of the company. It contains a contract for repayment of principal after a specified period or at intervals or at the option of the company and for payment of interest at a fixed rate payable usually either half-yearly or yearly on fixed dates. According to section 2(30) of The Companies Act, 2013 ‘Debenture’ includes Debenture Inventory, Bonds and any other securities of a company whether constituting a charge on the assets of the company or not.

Bond: Bond is also an instrument of acknowledgement of debt. Traditionally, the Government issued bonds, but these days, bonds are also being issued by semi-government and non-governmental organisations. The terms ‘debentures’ and ‘Bonds’ are now being used inter-changeably.

2.2 Distinction between Shares and Debentures

Ownership: A ‘share’ represents ownership of the company whereas a debenture is only acknowledgement of Debt. A share is a part of the owned capital whereas a debenture is a part of borrowed capital.

Return: The return on shares is known as dividend while the return on debentures is called interest. The rate of return on shares may vary from year to year depending upon the profits of the company but the rate of interest on debentures is prefixed. The payment of dividend is an appropriation of profits, whereas the payment of interest is a charge on profits and is to be paid even if there is no profit.

Repayment: Normally, the amount of shares is not returned during the life of the company, whereas, generally, the debentures are issued for a specified period and repayable on the expiry of that period.

Voting Rights: Shareholders enjoy voting rights whereas debentureholders do not normally enjoy any voting right.

Security: Shares are not secured by any charge whereas the debentures are generally secured and carry a fixed or floating charge over the assets of the company.

Convertibility: Shares cannot be converted into debentures whereas debentures can be converted into shares if the terms of issue so provide, and in that case these are known as convertible debentures.

Some Glimpses of the Chapter are-

NCERT Class 12 Books Accountancy Part 2 Chapter 2- Issue and Redemption of Debentures- PDF Download

Chapter 2- Issue and Redemption of Debentures Safalta provides the latest NCERT course books for all the major subjects of Class 12. A team of proficient teachers drafts these matters in a precise and thorough manner. You can download the PDFs for all the subjects in a chapter-wise format.

These Books are very effective in preparing for annual exams. Here is the PDF for NCERT Class 12 Books Accountancy Part 2 Chapter 2- Issue and Redemption of Debentures.
 

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