cp9-part4.pdf - chapter \u2013 9 coM pAnY Accounts Unit 4 Issue of Debentures \u00a9 The Institute of Chartered Accountants of India Learning Objectives After

cp9-part4.pdf - chapter u2013 9 coM pAnY Accounts Unit 4...

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CHAPTER 9 Unit 4 Issue of Debentures COM PAN Y ACCOUNTS © The Institute of Chartered Accountants of India
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FUNDAMENTALS OF ACCOUNTING 9.95 Learning Objectives After studying this unit, you will be able to : Understand the meaning and basic purpose for raising debentures by the company Differentiate between shares and debentures of a company Understand various types of debentures Pass entries for issue of debentures payable in installments Make entries for issue of debentures considering the conditions of redemption Pass entries for issue of debentures as collateral security Pass entries for debentures issued for consideration other than for cash Write off discount on issue of debentures. Calculate interest on debentures 1. INTRODUCTION In the earlier units of this chapter, we have studied the issue of share capital as a means of raising funds for financing the business activities. But with increasing and ever growing needs of the corporate expansion and growth, equity source of financing is not sufficient. Hence corporates turn to debt financing through various means. Issuing debt instruments by offering the same for public subscription is one of the sources of financing the business activities. Debt financing does not only helps in reducing the cost of the capital but also helps in designing appropriate capital structure of the company. Debenture is one of the most commonly used debt instrument issued by the company to raise funds for the business. 2. MEANING The most common method of supplementing the capital available to a company is to issue debentures which may either be simple or naked carrying no charge on assets, or mortgage debentures carrying either a fixed or a floating charge on some or all of the assets of the company. A debenture is a bond issued by a company under its seal, acknowledging a debt and containing provisions as regards repayment of the principal and interest. If a charge * has been created on any or on the entire assets of the company, the nature of the charge and the assets charged are described therein. Since the charge is not valid unless registered with the Registrar, and the certificate registering the charge is printed on the bond. It is also customary to create a trusteeship in favour of one or more persons in the case of mortgage debentures. The trustees of debenture holders have all powers of a mortgage of a property and can act in whatever way they think necessary to safeguard the interest of debenture holders. Charge is an incumbrance to meet the obligation under the Trust Deed, whereby the company agrees to mortgage specific portion either by way of a first or second charge. Such charge implies right of lenders to secure their payment from such asset(s) or from the liquidator in the event of winding up or from the company when the charge becomes void.
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