Debenture Redemption Process
Explore the concept of debenture redemption, including sources, modes, and types of debentures. Learn about redemption out of capital or profit, debenture redemption reserves, and conversion methods. Discover the journal entries involved in the redemption process.
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Presentation Transcript
Chapter - Redemption of Debentures
Redemption of Debentures Meaning of Redemption- Period, Amount, Sources, and Mode Types of Debentures- Redeemable Debentures Irredeemable Debentures Redemption out of Capital Redemption out of Profit
Redemption of Debentures Redemption out of Capital- On redemption, the debenture holders are paid out of the cash or bank account, This reduces the working capital available with company, If no amount is set aside out of such redemption, such redemption is said to be out of the capital of the company.
Redemption of Debentures Redemption out of Profit- In this case, the debenture holders are paid out of the profits of the company. When adequate profits are transferred from the profits to Reserve account before redemption of debenture, such redemption is said to be out of profits. This may be done by creating debenture redemption reserve out of profits of every year.
Redemption of Debentures Debenture Redemption Reserve- Purpose of creation Use Quantum- should not be less than 25% Deposit or Investment- at least 15% of the amount of debenture maturing during year. Debenture Redemption Fund/S.F.- Annual Instalment= Amount of Redemption X Factor in S.F.
Redemption of Debentures Debenture Redemption by Conversion Method- Existing Debenture are converted into new class of Equity shares, Preference shares or Debentures. This conversion may be issue at par, premium or discount. Premium must be adjusted against Security premium only. Debenture holders can also have option of Cash.
Redemption of Debentures Journal Entries on Conversion- Amount due to debenture holders. Conversion by issue of New Shares at par Conversion by issue of New Shares at Premium Conversion /Option adopted of Cash Transfer to General Reserve( If redeemed in cash) Adjustment of Security Premium
THANK YOU!! Assistant Prof. Pradeep H. Tawade DEPARTMENT OF ACCOUNTANCY, NSS College of Commerce & Eco. Tardeo, Mumbai-34 Email ID pradeeptawade26@yahoo.com Mobile No. 9619491859
