Page 137 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I Gopika Juneja, Lovely Professional University

Notes Unit 6: Debentures: Concept, Types, Issue

CONTENTS
Objectives
Introduction
6.1 Meaning

6.2 Kinds of Debentures
6.3 Distinction between Share and Debenture
6.4 Distinction between Debentures and Debenture Stock
6.5 Issue of Debentures

6.6 Calls-in-Advance and Calls-in-Arrear on Debentures
6.7 Issue of Debentures for Consideration Other Than Cash
6.8 Issue of Debentures as a Collateral Security for a Bank Loan
6.9 Summary
6.10 Keywords
6.11 Review Questions

6.12 Further Readings

Objectives

After studying this unit, you should be able to:
 Explain the meaning of Debentures

 Define kinds of Debentures
 Explain the distinction between Share and Debenture
 Explain distinction between Debenture and Debenture Stock
 Know issue of Debentures

Introduction

A debenture is a document that either creates a debt or acknowledges it, and it is a debt without
collateral. In corporate finance, the term is used for a medium- to long-term debt instrument
used by large companies to borrow money. In some countries the term is used interchangeably
with bond, loan stock or note. A debenture is thus like a certificate of loan or a loan bond
evidencing the fact that the company is liable to pay a specified amount with interest and
although the money raised by the debentures becomes a part of the company’s capital structure,
it does not become share capital. Senior debentures get paid before subordinate debentures, and
there are varying rates of risk and payoff for these categories.
Debentures are generally freely transferable by the debenture holder. Debenture holders have
no rights to vote in the company’s general meetings of shareholders, but they may have separate
meetings or votes e.g. on changes to the rights attached to the debentures. The interest paid to
them is a charge against profit in the company’s financial statements.

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