This Chapter on the Issue and Redemption of Debentures explains all about Debentures with respect to the company form of accounting
Introduction to CBSE Class 12 Accountancy Chapter "Issue-and-Redemption-of-Debenture"
The chapter covers a range of topics, including:
- Definition and Types of Debentures: Explains what debentures are and their various types such as bearer debentures, registered debentures, secured debentures, unsecured debentures, convertible debentures, and non-convertible debentures.
- Issue of Debentures: Discusses the methods of issuing debentures at par, at a premium, and at a discount. It also covers the issue of debentures as collateral security and for consideration other than cash.
- Redemption of Debentures: Describes the various methods of redeeming debentures, including lump-sum payment, annual drawings, purchase in the open market, and conversion into shares or new debentures.
- Accounting Treatment: Provides the accounting entries for the issue and redemption of debentures, including the treatment of discount on issue and premium on redemption.
Assignments for CBSE Class 12 Accountancy Chapter “Issue-and-Redemption-of-Debenture”
- Case Study Analysis: Analyze a company’s debenture issue process, including the terms of issue and accounting treatment.
- Research Project: Investigate the impact of issuing debentures on a company’s financial statements and overall financial health.
- Debate Preparation: Prepare for a debate on the advantages and disadvantages of different methods of debenture redemption.
- Chart Creation: Create a flowchart detailing the steps involved in issuing and redeeming debentures.
- Role Play: Conduct a mock scenario where students role-play as a company issuing debentures and later redeeming them through various methods.
Conclusion
The chapter “Issue-and-Redemption-of-Debenture” equips students with essential knowledge of how companies raise capital through debentures and manage their redemption. Understanding these concepts is crucial for comprehending a company’s financial strategies and obligations.
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Questions and Answers for CBSE Class 12 Accountancy Chapter "Issue-and-Redemption-of-Debenture"
Q1: What is meant by a Debenture?
- ANS: A debenture is a long-term financial instrument issued by a company to borrow money. It is a type of debt that is not backed by collateral.
Q2: What does a Bearer Debenture mean?
- ANS: Bearer debentures are not registered in the name of the holder and can be transferred by delivery.
Q3: State the meaning of ‘Debentures issued as a Collateral Security’.
- ANS: These are debentures issued to provide additional security for a loan. They do not earn interest unless the primary security is insufficient to cover the debt.
Q4: What is meant by ‘Issue of debentures for Consideration other than Cash’?
- ANS: This occurs when a company issues debentures to a vendor or supplier in exchange for assets instead of cash.
Q5: What is meant by ‘Issue of debenture at discount and redeemable at premium’?
- ANS: This happens when debentures are issued below their nominal value and are redeemed at a value higher than their nominal value, resulting in a loss on issue.
Q6: What is ‘Capital Reserve’?
- ANS: Capital reserve is created from capital profits, such as premiums on share and debenture issues, and is used for specific purposes like issuing bonus shares.
Q7: What is meant by an ‘Irredeemable Debenture’?
- ANS: Irredeemable debentures are not repayable during the lifetime of the company and are only payable upon winding up.
Q8: What is a ‘Convertible Debenture’?
- ANS: Convertible debentures can be converted into equity shares after a specified period.
Q9: What is meant by ‘Mortgaged Debentures’?
- ANS: These are debentures secured against the company’s assets.
Q10: What is discount on issue of debentures?
- ANS: Debentures issued at a value lower than their face value are said to be issued at a discount.
Q11: What is meant by ‘Premium on Redemption of Debentures’?
- ANS: This refers to debentures being redeemed at a value higher than their face value, leading to a capital loss.
Q12: How are debentures different from shares? Give two points.
- ANS:
- Debentures represent debt and do not confer ownership rights, while shares represent ownership in the company.
- Debenture holders receive fixed interest, while shareholders receive dividends based on profit.
Q13: Name the head under which ‘discount on issue of debentures’ appears in the Balance Sheet of a company.
- ANS: It is shown under “Miscellaneous Expenditures” until it is written off.
Q14: What is meant by redemption of debentures?
- ANS: It refers to the repayment of debentures by the company as per the terms and conditions of the issue.
Q15: Can the company purchase its own debentures?
- ANS: Yes, if authorized by its Articles of Association, a company can purchase its own debentures for investment or cancellation purposes.
Q16: What is meant by redemption of debentures by conversion?
- ANS: This occurs when debentures are converted into equity shares or new debentures after the specified period.
Q17: How would you deal with ‘Premium on Redemption of Debentures’?
- ANS: It is treated as a capital loss and written off over the debentures’ term, shown on the liabilities side of the Balance Sheet.
Q18: What is meant by ‘Redemption out of Capital?
- ANS: This refers to redeeming debentures without using profits, often requiring the creation of a Debenture Redemption Reserve (DRR).
Q19: What is meant by redemption of debentures by ‘Purchase in the Open Market’?
- ANS: A company can buy its debentures from the market, either for investment or to cancel the debt if the market interest rate is lower.
