6||class 12|| Redemption of debenture|| part 6 || issue of Debenture ||company accounts ||chaper 2||

1. Redeemable Debentures Definition: These are debentures that the company commits to repay at a specified date. The company is obligated to pay back the principal amount after a fixed period, either in lump sum or installments. Types: Fixed redemption: Redeemed on a pre-determined date. Call option: Redeemable before the maturity date at the company's discretion. Put option: Investors can ask for early redemption. Process: The redemption can be done through profits, or from a special reserve called the "Debenture Redemption Reserve" (DRR). Accounting treatment: The company passes journal entries for redemption and transfers an appropriate amount to the DRR until all debentures are redeemed. 2. Collateral Security Definition: It refers to the additional security provided to lenders (debenture holders) over and above the primary security to safeguard their interest. Types: Fixed charge: The security is tied to a specific asset. Floating charge: Covers all the company’s assets but is not attached to any specific asset. Purpose: In case the company defaults, collateral security ensures that debenture holders are prioritized when liquidating assets. Journal Entries: Often, no specific entry is made in the main books unless a default occurs, but it should be disclosed in the notes to accounts. 3. Interest on Debentures Definition: The company pays interest on debentures as a fixed cost, generally semi-annually or annually. Types of debenture interest: Simple interest: The interest is calculated on the principal amount only. Compound interest: Interest is calculated on both the principal and accumulated interest. Journal Entries: Regular entries are passed for the payment of interest, with deductions for tax at source (TDS) if applicable. Example: Debit: Interest on Debentures A/c Credit: Debenture holders A/c / Bank A/c Credit: TDS payable A/c 4. Assets Issued to Vendor Against Debentures Explanation: Sometimes, companies issue debentures to vendors as a form of consideration for the acquisition of assets or services, instead of cash payments. Scenario: When acquiring an asset (say machinery), instead of paying cash, debentures are issued equivalent to the asset's value. Journal Entries: For purchase of assets: Debit: Asset A/c Credit: Vendor A/c For settlement by issuing debentures: Debit: Vendor A/c Credit: Debentures A/c #cbse #education #commercememes #funmemes #physicswallah #motivation #commercewallahbypw #rajatarora #dearsir These topics will allow you to explain how debentures function both as a borrowing tool for companies and how they interact with financial statements, vendors, and creditors