Class 12 Accountancy Part 2 Chapter 2 Issue and Redemption of Debentures

What Are Debentures?

The word ‘debenture’ is derived from the Latin word debere which refers to borrow. A 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 specific period or at the option of the enterprise and for payment of interest at a fixed rate due to, usually either 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.

Let us now understand each concept of Issue and Redemption of Debentures in detail:

What is the Issue of Debentures?

The issue of Debentures is similar to the issue of shares by an enterprise. Here the money can be either collected lump-sum or in instalments. 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 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 Balance Sheet. 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.


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