WELCOME
Govt. H.S.S
Thengamam
• subject • Accounting for Debenture
• Topic. • Debenture
Debenture - Meaning
Debenture is a creditor ship security. It is a
document that creates or acknowledge a
debt. The debenture holder is entitled to get
a fixed rate of interest.
Definition
The Companies Act Defines
debenture as “debenture stock ,bonds and
any other securities of a company, whether
constituting a charge or not”.
Purpose of issuing debenture
• For setting up a new project.
• Expansion or diversification of Existing project.
• Normal capital expenditure for modernization.
• Merge/Amalgamation of companies.
Types of debentures
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Secured debentures.
Unsecured debenture.
Redeemable debentures.
Perpetual debentures.
Convertible debenture.
Non-convertible debenture.
Coupon rate debenture.
Zero coupon debenture.
Registered debenture.
Bearer debenture
Secured debenture
Those debentures which are secured
on particular assets called secured
debenture. These debenture are also
called known as Mortgage debenture.
Unsecured debentures.
Unsecured debentures are those which are
not secured fully or partially by a charge
on asset. General solvency of the company
is the only security for their holders. These
are also called naked debenture or simple
debenture.
Redeemable debenture
Debentures which are repayable after a stated
period of time are called redeemable debenture.
Debentures issued by companies are generally of
this type.
Irredeemable debentures
Debentures which are not repayable
during the life time of the company are called
irredeemable debenture. the company may
repay the money at the time of liquidation or
on the happening of a contingency or after
the expiry of a very long period.
Convertible debentures
Debentures which are convertible in to
shares or securities at the option of the holders,
after a certain period , are called convertible
debentures.
Convertible debentures are two types ;
1.Fully convertible debentures.
2.Partly convertible debentures.
Non-convertible debentures
Debentures which are not convertible into
Shares or other securities of the company are
called non-convertible debentures
Specific rate
Debentures are usually issued with a
specified rate of interest .This specified rate
is called Coupon rate .It may be either fixed
or floating .The floating interest is usually
linked with the bank rate and yields on
treasury bond plus a reward for risk
Zero coupon bond
A zero coupon bond is one which does not
carry a specified rate of interest. In order to
compensate the investors such bonds are issued
at a substantial discount .The difference
between the face value and issue price is the
total amount of interest related to the duration
of the bond.
Registered debentures
These are debentures which are
payable to the registered holders. The
names of the holders of these debentures
appear both on the debenture certificate
and in the company’s register of
debenture holders.
Bearer debentures
Debentures which are payable to the
bearer are called bearer debentures .The
names of the debenture holders are not
recorded in the register of debenture
holders. They are treated as negotiable
instruments and as such they are
transferable by mere delivery.
Trust deed
A document created by the company regarding
the appointment of trusters in order to protect the
interests of debenture holders before they are
offered for public subscription
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The following are those eligible to be a debenture
trustee
a) A scheduled bank
b) A public financial institution according to sec 4 A
(1) of companies act 1956
c) An insurance company
d) A body corporate
Difference between Share & Debenture
• Share
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Proprietor of the company
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Return in the form of dividend. •
Appropriation of profit
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Always unsecured.
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Right to attend meeting and vote •
Last claim amount of capital.
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No charge on the asset of the •
company.
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shareholders others will get their
money back only at the time of
liquidation.
• Debenture
Creditor of the company.
Return in the form of interest.
Charge against profit
Mostly secured.
No right to attend meetings & vote.
First claim amount of capital.
Charge is created on the asset of
the company.
Debenture holder can get back
their money at the time of
redemption.
Thank you,