NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2

Accountancy is an important part of the Commerce subject. Accountancy is defined as the profession of an accountant. The profession involves measuring, monitoring, processing and communicating financial information of a company. It also includes managing financial transactions and recording them, preparing tax returns and keeping records of all financial transactions. A lot of practice is required to grasp the fundamentals of accounting.

The chapter Issue and Redemption of Debentures covers the account handling of debenture issues, redemptions, and other relevant topics.

• NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2- Issue and Redemption of Debentures, created by the Extramarks, help students prepare this chapter in detail through well explained answers of the NCERT questions. Students have already learnt some of its concepts in the previous class. Hence, this chapter presents further explanations of the already learned relevant concepts.
• NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2 proves significantly fruitful for the students in their forthcoming Board Examination. Not just these Solutions, students can use the Extramarks website to access several other study tools. NCERT books, CBSE revision notes, CBSE sample papers, CBSE past years’ question papers, and other study materials are available to registered students.

Key Topics Covered In NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2

Below is a list of primary topics covered in NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2- Issue and Redemption of Debentures.

Let us dive into the detailed notes on each sub-topic in NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2- Issue and Redemption of Debentures.

Differentiating between Shares and Debentures

When it comes to putting your finances into the stock market, shares and debentures are standard terms. Equity and debt are the two most common paths for businesses to generate funds for development and growth.

• Meaning of Debenture:

A Debenture is a financial instrument that a firm uses to fund long-term borrowing. In this case, the money is borrowed capital, making the Debenture holder a creditor of the company. The debentures are redeemable and non-redeemable, with a set interest rate and unfettered transferability. It is unsecured and is solely supported by the issuer’s reputation. Unlike shareholders, debenture holders, who are the company’s creditors, have no voting rights. 

Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2 tells about the types of Debentures:

• Bearer debentures
• Non-convertible debentures
• Secured debentures
• Convertible debentures
• Registered debentures
• Unsecured debentures
• Meaning of Shares

A small portion of a company’s capital is designated as shares, often sold in the stock market to raise cash for the company. The share price is the price at which an investor purchases a share. Because they possess a percentage of the company’s stock, shareholders are eligible to receive the dividend specified by the organisation. 

The shares are transferable and transportable, and they are divided into two portions:

• Equity shares
• Preference shares 

Types of Debentures

From The Point Of View Of Security:

• Secured Debentures:  Secured debentures are when a charge is placed on the enterprise’s properties or assets to make a payment. The fee may be either floating or fixed.

• Unsecured Debentures:  They do not have a specific charge on the company’s assets. By default, a floating charge on these debentures may be formed. These debentures are often not distributed.

From The Point Of View Of Tenure:

• Redeemable Debentures:  These debentures are due at the end of the period, which can be paid either in one lump payment or in installments during the business’s life.

• Irredeemable Debentures:  These debentures are also known as Perpetual Debentures since the corporation makes no attempt to return money obtained or borrowed by circulating such debentures.

From The Point Of View Of Convertibility:

• Convertible Debentures:  Convertible Debentures are debt instruments that can be converted into equity shares or any other security at the discretion of the company or the debenture holders.
• Non-convertible Debenture:  Non-convertible debentures cannot be converted into shares or other securities.

From the Point Of View Of The Coupon Rate:

• Specific Coupon Rate Debentures:  These debentures are issued with a specified rate of interest, which is referred to as the coupon rate.
• Zero-Coupon Rate Debentures:  The interest rate on these debentures is usually not specified. Such debentures are circulated at a significant discount to recover investors. The difference between the nominal value and the distributed price is the amount of interest connected with the debentures’ tenure.

From The Point Of View Of Registration:

• Registered Debentures:  These debentures are those in which all of the debenture holders’ information, including addresses, names, and holding details, is recorded in a register maintained by the company.
• Bearer Debentures:  These debentures can be transferred by delivery, and the firm does not maintain track of who owns them. The individual who delivers the interest coupon attached to debentures receives the interest.

Issue of Debentures

The issue of Debenture appears to be quite similar to a company’s stock offering. Money can be gathered in a flat sum or installments here. The two are treated similarly in terms of accounting. The debentures can now be issued for various reasons, including cash. Debentures are frequently issued or circulated as collateral security.

Over Subscription

The term “oversubscription of shares” refers to a situation in which a corporation obtains applications for many more shares than the company has made available to the public. The SEBI standards do not allow for outright rejection of applications, although they can be refused if the information is inaccurate or the application money is insufficient.

As a result, the company can allocate shares to individuals in three ways or alternatives. In the following lines, several options are described:

• Total rejection of some applications.
• Accepting some applications in total.
• Pro-rata allotment to some applicants.

Issue of Debentures for Consideration other than Cash

Debentures can sometimes be granted for reasons that involve no cash. A firm may buy any other company or purchase assets from a vendor. Instead of paying by cash, the corporation will settle the payment by issuing debentures to the vendors.

Debentures can be issued in different ways:

• For purchase of Assets.
• For issue of debentures at par.
• For issue of debentures at a discount.
• For issue of debentures at a premium.

Issue of Debentures as a Collateral Security

Collateral Security is a subsidiary (secondary) protection mechanism frequently demanded by banks and implied to ensure a debtor’s compliance with the loan obligation. The primary security on a significant trading loan is usually the portion that is being funded, such as a shipment or a corporate automobile or a factory. Nevertheless, the bank may require collateral or secondary security to assist in the guarantee process to return the loan on time. In such cases, the company may issue its debentures to the lenders and other guaranteed assets. Debentures issued as Collateral Security’ is the name given to this form of debenture.

In the records of the company, debentures issued as collateral security can be traded in two ways:

• Method 1:  No entry is made in the books of accounts since such an issue creates no responsibility. On the liability side of the balance sheet, however, a notation is attached to the section loan stating that the circulation of debentures has safeguarded it as collateral security.
• Method 2: Debenture circulation as collateral security may be noted in the journal’s books.

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Terms of Issue of Debentures

The activity of a firm issuing a certificate under its seal to recognise any debt that the company has taken is referred to as the issue of debentures. The procedure of issuing debentures is similar to that of giving shares by a corporation. A prospectus will be issued, applications from interested parties will be accepted, and letters of allocation will be issued.

If your application is denied, your money will be reimbursed, and if your application is only partially accepted, your money will be utilised in future calls. Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2 discusses the issuance of Debenture in the following ways.

Debentures can be issued in the following ways:

• As a Collateral security
• By Cash
• Consideration other than Cash

Debentures can also be issued in three different ways, depending on the terms of the issue:

• At Par
• At Discount
• At Premium

Interest on Debentures

The interest payment is a reward given to all the debenture holders for investing in the company’s debentures. Interest is usually paid on the face value of the debentures in a periodic systematic way at a defined rate of interest, and it is recognised as a charge on earnings.

Interest on debentures is a charge that runs counter to the business’s profit and must be paid whether or not the company makes a profit. If a firm exceeds the suggested limit, the Income Tax Act of 1981 requires it to deduct income tax at the recommended interest rate due to debentures. TDS is collected and lodged with the appropriate tax authorities.

Loss on Issue of Debentures

The loss/discount on the issuance of debentures is usually a capital loss or a bogus asset that must be written off throughout the life of debentures. The advantage of debentures would accumulate to the company until their restitution or redemption. The amount of loss or discount on issuing debentures cannot be written off during the year of issue.

The reduction might be charged to either a Securities Premium A/c or wiped down over three to five years via the profit and loss statement, according to ICAI advice (The Institute of Chartered Accountants of India).

There are two techniques for writing off losses or discounts on debenture issues against revenue earnings that can be accepted. 

• Fixed instalment method.
• Fluctuating the instalment method.

Redemption of Debentures

The payment of the number of debentures by the company is called debenture redemption. Liability on account of debentures is discharged when debentures are recovered. To put it differently, the quantity of money required to redeem debentures is substantial. Therefore economic businesses set aside sufficient profits and accumulate capital to reclaim debentures.

The debentures can be redeemed in four different ways, namely:

• By converting the debt into stock or debentures.
• Purchase in the open market.
• Installment payments.
• Lump-sum payments.

NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2 Accounting for Share Capital: Important Links

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Key Features of NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2

The solutions provided by Extramarks help students significantly to achieve good results in the Board Examinations. Extramarks presents NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2. 

The following are some significant reasons why students should choose Extramarks:

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