Issue and Redemption of Debentures

What Are Debentures?

The word ‘debenture’ is derived from the Latin word debere which refers to borrow. Debenture is a written tool acknowledging a debt under the general authentication of the enterprise. It comprises of an agreement for repayment of principal after a particular period or at intermissions or at the option of the enterprise and for payment of interest at a fixed rate duet to, usually either yearly or half-yearly on fixed dates. According to the section 2(30) of The Companies Act, 2013 ‘Debenture’ comprises of – Debenture Inventory, Bonds and any other securities of an enterprise whether comprising a charge on the assets of the enterprise or not.

What is a Bond?

Bond is a tool of acknowledgement of debt. Generally, the Government issued bonds, but in the current days, bonds are being issued by non-governmental establishments and semi-government. The terms Bonds and Debentures are now being utilised reciprocally.

What is Issue of Debentures?

The issue of Debentures is similar to the issue of shares by an enterprise. Here the money can be either collected round sum or in installments. The accounting treatment of the 2 is absolutely similar. Now, the debentures can be circulated for cash or some other application. At times circulation of debentures is done as a collateral security.

What is Redemption of Debentures?

Redemption of debentures refers to the repayment of these debentures by the enterprise to the debenture holders or the members. So the enterprise will clear its liability and take it off from the B/S. This happens to be a vital transaction for the enterprise since the amount of money elaborated is likely to be entirely important.

The above mentioned is the concept, that is elucidated in detail about Issue and Redemption of Debentures for the class 12 Commerce students. To know more, stay tuned to BYJUS.