A company if authorised by its articles of association, can buy its own debentures in the open market. The debentures so purchased can be used either for immediate cancellation or redemption of debentures or for investment. Debentures when purchased for investment are popularly known as “Own Debentures”.

What is meant by redemption of debentures?

Redemption of Debentures means repayment of the amount of. debentures to the debenture holders. It implies of the principle amount as well as interest due on. debentures to the debenture holders. In other words, it refers to the discharge of liability on debentures.

What is redemption of debentures by purchase in open market?

When debentures are redeemed prior to their maturity date without proper notice to the debenture-holders, the same can be done by purchasing them in the open market. The law, of course, does not prohibit a company from purchasing its own debentures unless the terms of issue specify otherwise.

Which account is used for redemption of debentures?

This debenture redemption reserve is a capital reserve account. It is funded by the divisible profits of each year, i.e. a portion of the profits are set aside for this purpose. This account can only be utilized for the purpose of redemption of debentures and for no other purpose.

Can a company buy back its own debentures?

A company cannot do buyback of debentures as debenture denotes a debt to the company and it is not included in specified securities.

Can a company hold its own debentures?

Yes, a company can purchase its own debentures provided it is authorised by its Article of Association. A company may also purchase its own debentures with the motive of investment and sell them at higher price in future and thereby earn profit.

What is debenture explain?

A debenture is a type of debt instrument that is not backed by any collateral and usually has a term greater than 10 years. Debentures are backed only by the creditworthiness and reputation of the issuer. Both corporations and governments frequently issue debentures to raise capital or funds.

What is the meaning of redemption of debentures?

Redemption of Debentures is defined as the settlement of borrowed funds by a company or a firm to their debenture holders after the date of maturity. After the funds are repaid, the liability on the debenture account is discharged. To have a more fundamental understanding of the Redemption of Debentures Meaning : (Images to be uploaded soon)

What does it mean to buy your own debentures?

Buying of own Debentures in the open market for redemption means puchase of own debentures by the company from the market for the motive : A company can buy its own debentures in the pen market,if it is authorized by its AOA.

What happens when a company cancels a debenture?

If the company cancels the debentures so purchased, it will amount to redemption of these debentures. Cancellation of debentures may take place in one of the two ways: The company may cancel the debentures immediately after their purchase in the open market. (b) Cancellation after holding them for some time as ‘Own Debentures’:

How many debentures are redeemed in a day in India?

Rs.6,00,000 Debenture Redemption Reserve ………Rs.2,00,000 On that date, the company decided to transfer Rs.1,00,000 to Debenture Redemption Reseve and redeemed Rs. 3,00,000 worth of debentures. Half of the DRR was transferred to General Reserve on the same day. Pass necessary journal entries in the books of the company. [3]