Joint Stock Company Accounts : Redemption of Debenture
ICSE · Class 12 · Accountancy
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What is redemption of debentures?
Answer
Redemption of debentures means repayment of the debenture amount to debentureholders. It also means the discharge of the company’s liability to debentureholders when the debenture amount is repaid.
Where are the terms and conditions for issue and redemption of debentures specified?
Answer
The terms and conditions of issue and redemption of debentures are specified in the debenture certificate. Redemption takes place according to those terms.
Name the main methods of redemption of debentures.
Answer
The main methods are: 1. Redemption in a lump sum, 2. Redemption in annual instalments by draw of lots, and 3. Redemption by purchase in the open market.
Explain redemption of debentures in a lump sum.
Answer
In lump sum redemption, all debentures are repaid in one payment at the expiry of the fixed period, according to the terms and conditions of issue.
How does redemption by annual instalments through draw of lots work?
Answer
In this method, redemption is made in annual instalments. The instalment amount is found by dividing the total amount of debentures by the number of years. The debentures to be redeemed each year are …
What is redemption of debentures by purchase in the open market?
Answer
A company, if authorised by its Articles of Association, can purchase its own debentures in the open market. The debentures purchased may be cancelled, which means they have been paid.
What is the formula for annual instalment in the draw of lots method?
Answer
Amount of instalment = Total amount of debentures ÷ number of years it is to last. Here, total amount of debentures means the face value of all debentures issued, and number of years means the period …
What are the three sources of finance for redemption of debentures?
Answer
The three sources are: redemption from the proceeds of fresh issue of shares or debentures, redemption out of capital, and redemption out of profits.
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