Issue and Redemption of Debentures
Debenture is written acknowledgement of debt. Debenture document contains conditions and provisions regarding repayment of principal and payment of interest. Debentures include debenture stock, bond and any other instrument acknowledging debt. Debenture is issued under the common seal, provides for a fixed rate of interest and repayment of principal, may or may not be covered by a charge. On the basis of security, debentures can be secured against assets of the company or can also be unsecured debenture. Floating charge is created on all the assets of organisation. On the basis of redemption, debentures can be redeemable i.e., repaid during existence of company or can be irredeemable that can be repaid only when company is liquidated. On the basis of conversion, debentures can be convertible that can be converted into shares or non convertible that cannot be converted into shares. On the basis of rate of coupon, debentures can have specified coupon rate or zero coupon rate. On the basis of registration, debentures can be registered in which name of holders appear in the register of debenture holders or bearer in which company does not maintain any record of debenture holders.
Bond is similar to debenture that can be issued by the Government, Semi-Government and non Government organisations. Debenture Trust deed is an agreement between company and trustees. Debenture Trustees are appointed to protect rights of debenture holders in a company. Debentures can be issued at par (Face value is equal to issue price), at premium (issue price is more than face value) or at discount (issue price less than face value). One part of Loss on issue of debentures is written off from Statement of Profit & Loss and other part is shown as Current asset. Balance left is shown as noncurrent asset. Oversubscription of debentures is a situation where shares applied by public are more than applications invited.