Page 156 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 6: Debentures: Concept, Types, Issue

 Equity shares can never be converted into debentures, while debentures can be converted Notes
into shares at the discretion of the debenture-holders.

6.10 Keywords

Collateral Security: A collateral security means a subsidiary or secondary security.

Convertible Debentures: Those debentures which can be converted into shares of the company
on certain dates, or during a certain period at the option of the debenture-holder according to
the terms of issue.

Debenture Holder: A person having a debenture is called a debenture-holder, who is creditor of
the company.
Debenture: A debenture is a document that either creates a debt or acknowledges it, and it is a
debt without collateral.
First Debentures: Those debentures that are to be repaid and on which interest is to be paid in
priority to other debentures, are called first debentures.

Irredeemable or Perpetual Debentures: In this case, the company does not fix any date for repayment
of debentures. The holder of these debentures cannot demand payment from the company
during its lifetime.

Naked or Simple Debenture: Those debentures which carry no security are unsecured. The
debenture-holders of these debentures have no priority over other creations of the company.
Non-convertible Debentures: Those debentures whose debenture-holders do not have a right to
convert them into equity or preference debentures.
Redeemable Debentures: These are those debentures which are redeemed/repaid either at the
expiry of a specific period or within a period by the company.

Registered Debentures: Those debentures whose debentures-holders are registered in the books
of the company.
Second Debentures: Those debentures that are repaid and in which interest is to be paid after the
payment of first debentures, are called second debentures.

Secured or Mortgage Debentures: These are those debentures which are secured by a charge on
the assets or properties of the company. When the charge is of a particular assets, such as land or
buildings, it is called a fixed charge.
Shareholder: A person having a share is called a shareholder and has ownership security.

6.11 Review Questions

1. What do you mean by a Debenture? Explain.
2. Explain the different types of Debentures.
3. Distinguish between share and debenture.

4. Explain the meaning of Issue of Debentures as Collateral Security.
5. What is a sinking fund? Explain how is it created?
6. Write the various forms in which debentures can be issued.

7. A company issued 10000 10% debentures of 100 each. 30 per debenture was to be paid
along with application. Applications were received for 12000 debentures. What can the
company do with the excess application money i.e. 60000 (2000 30).

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