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Can the Company Purchase Its Own Debentures? - Accountancy

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Numerical

Short Answer Question

Can the company purchase its own debentures?

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Solution

Yes, a company can purchase its own debentures provided it is authorised by its Article of Association. As per the Company Act, if a company is authorised by its Article of Association, only then it may purchase its own debentures from the open market. The main purposes of such purchase are as follows:

1. For immediate cancellation of debenture liability, if the interest rate on its debenture is higher than the market rate of interest.

2. 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.

Concept: Issue of Debentures as Collateral Security for a Loan
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APPEARS IN

NCERT Class 12 Accountancy - Company Accounts and Analysis of Financial Statements
Chapter 2 Issue and Redemption of Debentures
Short Answer Question | Q 15 | Page 135
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