Debentures (Issue) Flashcards
Other name?
Includes?
Loan capital
debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not
Charge?
Types of charge on assets?
Securing Loan by mortgaging specific assets towards the loan.
Fixed charge: charge on definite assets of permanent nature
Floating charge : no specific asset, but all assets except those charged by way are fixed charge.
- floating charge holder preference over unsecured creditor.
Debentures Classified on the basis of!?
A. Security
- Secured/Mortgaged : by floating or fixed charge on the assets.
* charge on the assets is registered with the registrar of Companies. - Unsecured/Naked
B. Redemption
- Redeemable : repayable by company on maturity, that is after a specified period.
- Irredeemable/Perpetual : repaid only when the company is wound up.
C. Registration
- Registered : In the name of the holder. Principle and interest payable to register debenture holder.
* transfer requires execution of transfer deed. - Bearer : Transferable by mere delivery. Interest is paid to the person who produces coupons attached to the debenture.
D. Convertibility
1. Convertible : convertible into shares.
Partly/fully
2. Non convertible
Interest calculation rate?
Payable?
Entry format?
If amount of interest accrued and due is not paid what is it termed as?
If the amount of interest is not due/payable but is accrued?
Interest outstanding or accrued on debentures whether due or not is shown under which head and subhead?
Fix rate on its nominal value.
Quarterly, half yearly, yearly as per the terms of issue.
Due, paid, transfer.
Interest accrued and due or interest outstanding.
Interest accrued but not due account credited.
Current liabilities; other current liabilities
Is meeting held for debenture holders?
Class meeting?
No; cannot participate in Annual meeting.
Class meeting can be done after debenture holders appeal,
Maximum limit of discount on debentures?
Nature of premium on redemption account? Shown?
Nature of discount on issue of debentures account?
Maximum time limit for redemption of debentures?
No limit
Personal A/c : Traditional approach
Liability A/c : Modern approach
(shown on liabilities side; capital loss; non current liabilities - other non current liabilities)
Capital loss ( on Assets side, miscellaneous expenditure as fictitious asset)
10 years; (Infrastructure companies: 30 years)
Write off discount/loss in same year?
Yes
Securities Premium Reserve
Capital Reserve
P&l
Types of bonds?
Interest on deep discount bonds?
Zero coupon bond
Deep discount bond
Difference between issue price and redemption price.
All zero coupon bonds are not deep discount bonds.
AS 2 AS 1 AS 3 AS 6 AS 7 AS 10 AS 12 AS 16 AS 26
Valuation and classification of inventories.
( stock valued at cost or market value whichever less)
Disclosure of accounting policies
(accounting policies used to prepare its financial statements)
Cash Flow
Depreciation
(Calculation and accounting treatment of depreciation)
Construction Contracts (accounting treatment of revenue and costs associated with construction contracts)
Property, Plant and Equipments
Government Grants
(local, national or international.
These government grants are sometimes referred to as subsidies, cash incentives, duty drawbacks etc)
Borrowing Cost
(does not deal with the actual or imputed costs of owner’s equity including preference share capital that is not categorised as a liability.) /
( loss on issue of debentures written off in the year incurred)
Intangible Assets
Trust deed and trustees?
Trustees protect the interest of debenture holders through the powers granted by the trust deed.
Ways to show debentures in balance sheet?
Non current liability (long term borrowings)
Current liabilities (short term borrowings)
Current liabilities (other current liabilities) : current maturities of long term debts.
*( Schedule 3 of Companies Act 2013:
liabilities shown as non current and current liabilities on the basis of maturity period)
Which companies can issue debentures for public subscription?
Can an unlisted company issue debentures?
Listed companies
Yes but by private placement only.
Which principle followed?
- Creation of premium on Redemption
- Rounding off numbers?
- Principle of prudence or principle of conservatism
2. Materiality
Other names for preliminary expenses and the most preferred one?
Formation cost account
Incorporation cost account (most preferred)
Preliminary expenses account
On which installment discount and premium?
Discount always on allotment
Securities premium can be anywhere and any no. of times.
Vendor’s account value is equals to?
Purchase consideration once decided can be changed or not?
Purchase consideration
No; as per SEBI.
If PC > value of debenture : premium
If PC < value of debenture : discount
Can debenture be issued as primary security?
Entry done for primary security?
Entry done for Collateral security?
When is collateral security realised?
When journal entry is not passed for Collateral security how is it shown in the balance sheet?
No always as collateral security.
No entry!
(Disclose)
Debenture Suspense a/c dr.
To 9% debentures a/c
(In notes to accounts debenture suspense subtracted from % debentures)
General Reserve a/c dr.
To debentures suspense a/c
(on payment of loan debenture suspense transferred)
Collateral security is realised by the lender only if the due amount cannot be recovered by realising the primary or principal security.
Under the head secured loans in the equity and liabilities side.
If redemption is done at premium then loss or profit?
Always loss.
Even if was issued at premium, because premium received on issue can only be used for five purposes.
Fictitious Assets Vs Nominal Assets?
Fictitious Assets : not of value, cannot be sold.
Intangible : have value can be sold.
- both do not have physical existence.
Types of depreciation?
Wasting assets
Intangible
Tangible
Depletion
Amortisation
Depreciation
Characteristics? (3)
Certificate of acknowledgement of borrowing
Mode and period of repayment of principle and interest is fixed
Rate of interest is specified with a prefix
Bond?
Acknowledgement of borrowing and signed by an authorised signatory
Refund of excess application money entry?
Debentures application & allotment A/c
To Bank
Redeemable at par?
Redeemable at premium?
% debentures A/c Dr.
To Debenture holders A/c
Debenture holders A/c Dr.
To Bank A/c
% debentures A/c Dr.
Premium on Redemption A/c Dr.
To Debenture holders A/c
Debenture holders A/c Dr.
To Bank A/c
Issue of debentures to promoters?
Incorporation expenses or preliminary expenses account debit/ underwriting Commission account debit
To promoters account/ underwriters account
Promoters account/ underwriters account debit
To% debentures A/c
In whose books is post dated check recorded and when?
In the books of drawer on it being issued.
Loss on issue of debentures account
Vs Premium on Redemption of Debentures A/c
Capital Loss (Expense A/c) Liability
How is discount or loss return off shown in balance sheet?
Shown as a deduction from security premium or Capital Reserve or statement of profit and loss whichever used.
