Joint Stock Company Accounts : Redemption of Debenture — Flashcards

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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.

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The terms and conditions of issue and redemption of debentures are specified in the debenture certificate. Redemption takes place according to those terms.

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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.

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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.

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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 …

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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.

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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 …

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The three sources are: redemption from the proceeds of fresh issue of shares or debentures, redemption out of capital, and redemption out of profits.