Question
Discuss briefly various methods of redemption of debentures.
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Answer
- Lump Sum Method: This method as the name suggests is a one-time payment method. Here the company will repay the whole amount in one lump sum payment to the debenture holders. The amount and the date of the payment will be according to the terms of issue.
- Installment Method: This is also known as the drawing of lots method. Here the company will start redeeming debentures in lots or installments from one particular year as agreed by the terms of issue. Let us see the accounting entries for the same.
- Conversion Method: A company may opt to not pay the debenture holders at the time of redemption. Instead of that, it can convert the debentures into a new class of debentures or even equity shares. Such debentures are known as convertible debentures. Such new debentures or shares can be issued at par, premium or even discount.
- Purchasing Method: In this method, the company will buy its debentures from the open market and then immediately cancel them. This is known as the purchase from the open market. This way the company can defer the redemption till it is suitable to them. Also if they buy the debentures for a discount they can make additional benefits/ profits as well.
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31st March, 2018 ₹
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31st March, 2017 ₹
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Notes:
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40,000
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30,000
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₹
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68,000
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Purchases.
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