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Unit 7: Debentures: Conditions of Issue of Debentures from Redemption Point of View

Select the best alternative: Notes
13. Interest on own debentures is transferred to:
(a) Capital reserve
(b) Sinking fund

(c) General reserve
14. If there is any balance in Debenture Redemption Fund, that will be transferred to:
(a) Profit and Loss Account
(b) General Reserve

(c) Capital Reserve
15. The following entry is passed in the books of A company:
Bank Account Dr. 9,000
Loss on Issue of Debentures Account Dr. 1,500

To 10% Debentures Account 10,000
To Premium on Redemption of Debentures A/c 500
Here, debentures are issued at a discount of:
(a) 10%

(b) 5%
(c) 15%



Case Study Debenture Trustees can be Made to Pay

he National Commission has held that a Debenture Trustee can be held liable
under the Consumer Protection Act (CPA). (Judgment dated July 4, 2008 in Revision
TPetition No. 1299 of 2003-Central Bank of India v/s Tadepalli Padmaja & Ors.)
Case Study

Synergy Financial Exchange Ltd, a non-banking financial company, had issued debentures
with Central Bank of India as the Trustee. One of the clauses in the agreement required the
company to pay all amounts of principal and interest due under the debenture by crossed
account-payee cheques or bank drafts drawn on a bank in Mumbai. It was agreed and
undertaken to redeem the debentures in full on the expiry of three years from the date of
allotment.
The debentures carried interest of 15% per annum payable on June 30 and December 31
each year, subject to deduction of tax. Failure to pay the interest would result in an additional
levy of compound interest at the same rate. All such compound interest was a charge
secured by the debentures. In case of default in redemption, the company would have to
pay liquidated damages of a further compound interest of 2% per annum for the period
and the amount of the default, and this too would be a charge secured by the debentures.

Contd...

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