Can the company purchase its own debentures?

Open in App

Solution

Yes, a company can purchase its own debentures provided it is authorised by its Article of Association. As per the Company Act, if a company is authorised by its Article of Association, only then it may purchase its own debentures from the open market. The main purposes of such purchase are as follows:

1. For immediate cancellation of debenture liability, if the interest rate on its debenture is higher than the market rate of interest.

2. A company may also purchase its own debentures with the motive of investment and sell them at higher price in future and thereby earn profit.

Suggest Corrections

Similar questions

Q. Answer briefly the following question:
State two reasons for a company to purchase its own debentures from the open market.

A company purchased assets of the book value of Rs 10,00,000 from Best Ltd. It was agreed that the purchase consideration would be paid by issuing 13% Fully paid Debentures of Rs 40 each. If Debentures are issued at par then how many such Debentures would be issued by the company to Best Ltd.?

Q. The company may allot debentures to the vendors for acquiring some assets as payment or purchase consideration, such issue of debentures to vendors is known as issue of debentures for_____.

Q. The company may allot debentures to the vendors for a acquiring some assets as payment for purchase consideration, such issue of debentures to vendors is known as issue of debentures for _______.

A company purchased assets of the book value of Rs 99,000 from another Co. It was agreed that the purchase consideration be paid by issuing $11 %$ Debentures of Rs 100 each. Assume that the debentures have been issued (i) at par, (ii) at a discount of $10 %$ , and (iii) at a premium of $10 %$ .

Give necessary journal entries in the books of purchasing company.

Join BYJU'S Learning Program