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A debenture is an unsecured loan you offer to a company. The company does not give any collateral for the debenture, but pays a higher rate of interest to its creditors. In case of bankruptcy or financial difficulties, the debenture holders are paid later than bondholders. Debentures are different from stocks and bonds, although all three are types of investment. Below are descriptions of the different types of investment options for small investors and entrepreneurs.
Debentures and Shares
When you buy shares, you become one of the owners of the company. Your fortunes rise and fall with that of the company. If the stocks of the company soar in value, your investment pays off high dividends, but if the shares decrease in value, the investments are low paying. The higher the risk you take, the higher the rewards you get.
Debentures are more secure than shares, in the sense that you are guaranteed payments with high interest rates. The company pays you interest on the money you lend it until the maturity period, after which, whatever you invested in the company is paid back to you. The interest is the profit you make from debentures. While shares are for those who like to take risks for the sake of high returns, debentures are for people who want a safe and secure income.
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What are the uses of share premium?
Share premium is used for many purposes and 1 of them is redemption of preference shares and debentures
What is the journal entry for redemption of debentures which were issued at discount?
debit redemption of debentures accountcredit cash / bank
What is Source and application of funds?
sources of Funds 1. Profit from Operations 2. Issue of Shares 3. Issue of Debentures 4. Bank Loan (Long Term) 5. Sale of fixed Assets Application of Funds 1. Expense for operations 2. Redemption of shares 3. Redemption of Debentures 4. Payment of Loans 5. Purchase of Assets
Examine Debenture can be redeemed only out of capital?
No Debentures can not be redeemed out of capital only. Gov of India and SEBI has indirectly placed restrictions on redemption of debentures. Now it is compulsory to create Debenture Redemption Reserve at-least 50% of the debentures issued.
What is the nature of shares or debentures in Section 44 of Companies Act?
The nature of shares or debentures in section 44 of the Act is movable and transferable in accordance with the article of association.
Define redemption of debentures out of capital?
When debentures are redeemed out of capital, no transfer is made to general reserve or debenture redemption reserve account. In this method it is assumed that the company has sufficient funds to redeem the debentures. So the profits are not utilised to replace the debentures.It affects adversely to the Working Capital of the company.
After redemption of debenture debenture reduption reserve where to transfer whether in PL Ac or in General reserve.?
After redemption of debentures, debenture redemption reserve is to be transferred to general reserve.
Four components of capital structure?
the components of capital structure(CS) includes: 1. CS with equity sahres only. 2. CS with equity and preference shares. 3. CS with equity and debentures. 4. CS with equity shares, preference shares and debentures.
What is redemption of debentures using purchase of own debenture?
A company can buy its own debenture in the open market, if it is authorised by its AOA. the debentures so purchased can be used either for immediate cancellation or redemption of debenture or for investment. the debenture so purchase for investment can be subsequently either be issued to fullfill additional requirements of cash or can be cancelled if the company so desires. debentures when purchases for investment are popularly known as 'OWN DEBENTURES.'
What Advantages does issue of debentures over equity shares?
Cost is the major advantage. Debentures are to be serviced for the contracted period of time, while equity servicing is perennial.
What are three other names for shares?
Ordinary and preference shares debentures securities also things like equity stock etc.
Under what conditions may the directors of acompany prefer to issue ordinary shares rather than debentures?
ordinary shares are equity whereas debentures are debt - debt is always payable, whereas, equity holders do not always necessarily demand a dividend payment immediately. it would depend on what the company wanted to use the funds for. if the funds were used to fund a project where the returns were not expected for a few years, a company may wish to issue shares rather than debentures as the debentures would have to be paid regardless of when the returns came.
