Debentures its types and Methods of Redemption of Debentures

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.

1. DEBENTURES Its Types & Methods of Redemption By G yananjaya B ehera

2. TOPIC TO BE DISCUSSED What are Debentures? 1 Types of Debentures 2 What is Redemption of Debentures ? 3 Various Methods of Redemption of Debentures 4 Sources of Redemption of Debentures 5

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 .

4. DEBENTURES TYPES DEBENTURES Security Tenure Mode of Redemption Coupon Rate Registration Secured Unsecured Redeemable Irredeemable Convertible Non-Convertible Floating Rate Fixed Rate Registered Bearer

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. T he 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.

14. THANK YOU "An investment in knowledge pays the best interest.“ - Benjamin Franklin