Issue of Debentures TS Grewal Solutions: Free PDF [CBSE]

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BookTS Grewal Accountancy
Class12
Chapter9 – Issue of Debentures
Volume2

Issue of Debentures Class 12 TS Grewal Solutions 2023-24

TS Grewal Class 12 Solutions Chapter 9
TS Grewal Class 12 Solutions Chapter 9
TS Grewal Class 12 Solutions Chapter 9

TS Grewal Class 12 Chapter 9 – Issue of Debentures

When a company seeks long-term financing, one of the primary instruments it uses is debentures. In essence, debentures are loan certificates issued by the company, which are evidence of funds borrowed. TS Grewal Class 12 chapter 9 meticulously examines the issuance, types, and other intricacies of debentures.

Understanding Debentures

A debenture is a formal debt instrument issued by a company, signifying the company’s promise to repay a specified amount at a predetermined future date, often accompanied by periodic interest payments. Unlike shares, debenture holders don’t have ownership rights in the company.

Types of Debentures

  • Secured or Mortgaged Debentures: These debentures have specific assets as collateral. In case the company defaults, the debenture holders have the right to sell these assets to recover their money.
  • Unsecured or Simple Debentures: Without any collateral, these debentures are issued purely on the company’s creditworthiness. They come with a higher risk and consequently, often have a higher interest rate.
  • Convertible Debentures: These debentures come with an embedded option that allows holders to convert them into equity shares after a certain period or under certain conditions.
  • Non-Convertible Debentures: As the name suggests, these debentures cannot be converted into equity shares, making them pure debt instruments.

Methods of Issuing Debentures

  • Issue at Par: When debentures are issued at their face value. If a debenture’s face value is $100, and it’s issued at $100, it’s issued at par.
  • Issue at Premium: When debentures are issued at a price higher than their face value. Using the above example, if it’s issued at $110, the extra $10 is the premium.
  • Issue at Discount: Here, debentures are issued for less than their face value, e.g., at $90 for a $100 face value debenture.

Journal Entries for Issue of Debentures

The financial representation of these transactions is imperative. Let’s understand this through journal entries:

  1. For Issue at Par:
    Dr. Bank (with the total amount received)
    Cr. 12% Debentures (with the face value of debentures)
  2. For Issue at Premium:
    Dr. Bank (with the total amount received)
    Cr. 12% Debentures (with the face value of debentures)
    Cr. Securities Premium (with the premium amount)
  3. For Issue at Discount:
    Dr. Bank (with the amount received)
    Dr. Discount on Issue of Debentures (with the discount amount)
    Cr. 12% Debentures (with the face value of debentures)

Debenture Redemption Methods

How a company pays back its debenture holders is crucial:

  • Redemption out of Capital: Here, debentures are repaid from the funds raised by issuing shares. This is a less common method since it doesn’t involve company profits.
  • Redemption out of Revenue: A portion of the company’s profits is reserved over the years. This reserved amount, known as Debenture Redemption Reserve (DRR), is then used to repay debentures.

Important Points

  • Debenture Redemption Reserve (DRR): A mandate for many companies ensures they keep aside a portion of their profits for future debenture redemptions. This provides a safety net for debenture holders and ensures that the company is genuinely committed to repaying its debt. Usually, a percentage of the face value of the debentures to be redeemed is set aside in this reserve.
  • Interest on Debentures: This is an obligatory payment made periodically, typically annually or semi-annually. It’s essential to remember that interest on debentures is a charge against profit. Hence, it is deducted before arriving at the net profit figure. In the financial statements, this is depicted on the debit side of the Profit and Loss account.

Issue of Debentures Class 12 TS Grewal Solutions PDF Download

TS Grewal’s Accountancy book is a popular textbook used by students in Class 12th studying Commerce stream. It is known for its clear and concise explanations of accounting principles and practices. As previously mentioned, using TS Grewal Class 12 Solutions can make your studies more effective and productive. In order to make your studies more convenient and productive for you, we have presented you with Issue of Debentures Class 12 TS Grewal Solutions PDF for free.

If you want to download the pdf solution, then you can click on the download button given below. The download button will take you to a new page, where you can easily download your TS Grewal Class 12 Solutions PDF for absolutely free of cost.

Conclusion

In conclusion, this was your TS Grewal Class 12 Solutions Chapter 9: Issue of Debentures. Understanding debentures is pivotal for anyone diving into corporate finance and accounting. This chapter offers a detailed insight into the world of debentures, from their issuance to their redemption. Grasping the nuances will not only help in examinations but also in real-world applications. If you have found our solutions helpful, then make sure share with your friends.

FAQs

Is the Debenture Redemption Reserve (DRR) the same as the amount used to redeem the debentures?

Not necessarily. DRR is a safety net, ensuring part of the profits are reserved for redemption. The actual amount used for redemption could come from this reserve and other sources, depending on company decisions and profitability.

What happens if a company defaults on its debenture payments?

If a company defaults, secured debenture holders can claim the sale of the assets against which their debentures were secured. Unsecured debenture holders, however, rank below other secured creditors.

Can a company issue debentures without interest?

Yes, a company can issue zero-coupon debentures, which do not carry any interest. Instead, they are issued at a significant discount to their face value and are redeemable at face value.

What is the main difference between shares and debentures?

Shares represent ownership, while debentures represent indebtedness.

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