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Redemption of Debentures means the repayment of liabilities of debentures after the specific period of time or on the demand of the company.
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What is Redemption of Debentures?
When business discharges the liability for the debentures by repaying the amount of the debentures to the debenture holders is known as the redemption of the debenture.
Mainly the debentures always repaid after a fixed period time which is decided before issuing of debentures. The date of redemption has predefined in the terms of issue of debentures. But the debentures can be redeemed in instalments by drawing lots or by purchase from the open market before the actual date of redemption.
After the purchase from the market, The debentures can be cancelled or converted into equity shares.
For Example:
ABK Limited issued 12,000 Debentures @ 100 on 01/01/2019 which are redeemable after 5 years. But the company want to redeem the debenture before the actual date of redemption. Provide the solution to the company how they can redeem the debentures before the actual redemption date in three years started from 01/01/2020.
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Solution:
There is the company can redeem debenture in three equal instalments by drawing lots or by purchasing these from the open market and then cancel them.
Calculation of the amount of instalment:
Amount of Instalment = Number of debentures/number of years
Number of debentures = 12000
Number of Years = 3 years
Amount of Instalment = 12,000 / 3
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= 4,000/-
So, If the company buy 4,000 debentures from the open market every year at market price then they can successfully redeem all debentures.
Check out the full article: –
Redemption of Debentures – explained with an example
Chapter No. 10 – Company Accounts (Redemption of Debentures) – USHA Publication Class +2 – Solution
Question wise solution of the all Questions of Chapter No. 10 – Company Accounts (Redemption of Debentures) – USHA Publication Class +2 – Solutions are shown below: –