This slides are the presentation of Debentures and its types and various types of Redemption of Debentures Methods and the various sources of redemption. All the details are mentioned in short for the presentation purpose.
2. TOPIC TO BE DISCUSSED
What are Debentures?1
Types of Debentures2
What is Redemption of Debentures ?3
Various Methods of Redemption of Debentures4
Sources of Redemption of Debentures5
3. DEBENTURES
• Debentures are the debt instruments issued by the
Companies and Government to issue the loan.
• The Loan amount that are issue are sold in smaller units
called Debenture and the person holding the units are
called Debenture Holders
• Debenture Holders received a fixed interest rate on their
invested amount.
5. REDEMPTION OF DEBENTURES
• Redemption of debentures refers to payment of the amount of
debentures by the enterprise.
• When debentures are reclaimed, liability on account of
debentures is being discharged.
• The amount of capital needed for redemption of debentures is
large and, hence, economic enterprises make adequate
provision out of gains and accrue capital to reclaim
debentures.
6. METHODS OF REDEMPTION OF DEBENTURES
Methods of Redemption
Payment in Lump
Sum
Annual Drawings
or Draw by Lots
Purchase in open
Market (own
debentures)
Conversion in
shares or New
Debentures
As Investment in
own Debentures
For Immediate
Cancellation
7. Payment in Lump Sum
• The redemption is made in one lumpsum at the expiry of a specified
period promised as the redemption date when the debentures were issued.
Annual installments or Draw by Lots
• Under this method, a certain amount of debentures is redeemed at regular
interval, say yearly, during the life of debentures. The amount of annual
drawings may or may not be equal.
Conversion into Shares
• A company may issue convertible debentures, giving options to the
debenture holders to exchange their debentures for equity shares or
preference shares in the company.
Purchase in Open Market (Own Debentures)
• A company is entitled to purchase its own debentures in open market, i.e.,
through the stock exchange. When the company purchases its own
debentures for immediate cancellation, it leads to automatic redemption.
Own debentures may also be purchased by the company for its own
investment and same may be reissued in future too.
8. SOURCES OF REDEMPTION OF DEBENTURES
Redemption out of
Capital
Redemption out of
Profit
Redemption through
Conversion
Redemption through
purchase in Open
Market
9. Redemption out of Capital
When Debentures are redeemed at Par.
(i) Debentures A/c Dr
To Debenture Holders A/c
(Being debentures becoming due for payment)
(ii) Debentures Holders A/c Dr
To Bank A/c
(Being debentures redeemed to debenture holders)
10. When Debentures are redeemed at Premium.
(i)
(ii)
(iii)
Debentures A/c Dr
To Debenture Holders A/c
(Being debentures becoming due for payment)
Premium on redemption of Debentures Dr
Debentures Holders A/c Dr
To Bank A/c
(Being debentures redeemed to debenture holders)
Securities Premium A/c Dr
To Premium on Redemption of Debenture A/c
(Being premium written off on redemption)
Free Reserves A/c Dr
11. Redemption out of Conversion
(A) When Shares are Issued at Par.
(i) Debentures A/c Dr
To Share Capital A/c
(Being shares issued at par)
(ii)
Debentures A/c Dr
To Securities Premium A/c
(Being shares issued at premium)
To Share Capital A/c
(B) When Shares are Issued at Premium.
12. Redemption Through Purchase in Open Market
(A) For Immediate Cancellation.
(i)
(ii)
Debentures A/c Dr
To Bank A/c
(Being debentures redeemed through Immediate Cancellation)
(B) For Debentures as Investment.
Own Debenture A/c Dr
To Bank A/c
(Being debentures redeemed as own investments)
Investment in Own Debentures A/c Dr
OR
13. Redemption Out of Profit
(A) For Appropriation of Surplus or withholding of profits through Debenture
Redemption Reserve.
(i)
(ii)
Surplus A/c Dr
To Debenture Redemption Reserve A/c
(Being Surplus appropriated for Immediate Cancellation)
(B) On transferring the balance of Debenture Redemption Reserve, after the
Debenture redemption.
Debenture Redemption Reserve A/c Dr
To General Reserve A/c
(Being DRR Balance transferred to General Reserve)
Section 71 (4) of Companies Act, 2013 – Debenture shall be redeemed out of divisible profit
through Debenture Redemption Reserve.
