Chapter 8 Accounting For Debentures Class 12 Accountancy 2022-2023 CBSE Notes & PDF

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Debentures are generally freely transferable by the debenture holder. Debenture holders have no rights to vote in the company’s general meetings of shareholders. The interest paid to them is a charge against profit in the company’s financial statements.


Convertibility point of view: There are two types of debentures :

Convertible debentures, which can be converted into equity shares of the issuing company after a predetermined period of time.

These may be Partly Convertible Debentures (PCD): A part of these instruments are converted into Equity shares in the future at notice of the issuer. The issuer decides the ratio for conversion. This is normally decided at the time of subscription.

Fully convertible Debentures (FCD): These are fully convertible into Equity shares at the issuer’s notice. The ratio of conversion is decided by the issuer. Upon conversion the investors enjoy the same status as ordinary shareholders of the company.

Non-convertible Debentures, which are simply regular debentures, cannot be converted into equity shares. These are debentures without the convertibility feature, these usually carry higher interest rates than their convertible counterparts.

Secured Debentures: These instruments are secured by a charge on the fixed assets of the issuer company. So if issuer fails to pay of either the principal or interest amount, its assets can be sold to repay the liability towards debenture holders.


Unsecured Debentures: These instrument are unsecured in the sense that if the issuer defaults on payment of the interest or principal amount, the investor is treated like other unsecured creditors of the company.

From Redemption point of view

Redeemable Debentures : Redeemable debentures are those which are redeemed or paid off after the termination of fixed term. The amount paid off includes the principal amount and the current year’s interest. The company always has the option of either to redeem a specific number of debentures each year or redeem all the debentures at specified date.

Irredeemable or Perpetual Debentures : Irredeemable debentures are those debentures which do not have any fixed date of redemption. They are redeemed either in the event of winding up or at a very remote period of time. Irredeemable or perpetual debenture holders can never force the company to redeem their debentures.

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Issue of Debentures:

Debentures can be issued in following ways:

  1. for cash
  2. for consideration other than cash
  3. As collateral security

Terms of Issue

Debentures can be issued in following ways:

  1. Issue of Debentures at Par
  2. Issue of Debenture at Premium
  3. Issue of Debentures at Discount.

Debenture Payable in Installments

  1. First instalment paid along with application is called as application money.
  2. Second instalment paid on allotment is called as allotment money.
  3. Subsequent instalments paid are called as call money calls can be more than one and called First call, second call or as the case may be.
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