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Question
What is meant by the redemption of debentures by “Purchase in the Open Market”?
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Solution
According to the Company Act, if a company is authorised by its Articles of Association, only then may it purchase its own debentures from the open market. The main purpose of such a purchase is as follows:
- For immediate cancellation of debenture liability, if the interest rate on its debenture is higher than the market rate of interest.
- A company may also purchase its own debentures with the motive of investment and sell them at a higher price in future and thereby earn profit.
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Short Answer Question
Under which head is the ‘Debenture Redemption Reserve’ shown in the Balance Sheet?
Explain the guidelines of SEBI for creating the Debenture Redemption Reserve.
What is meant by the conversion of debentures? Describe the method of such a conversion.
A company issued debentures of the face value of Rs 5,00,000 at a discount of 6% on April 01, 2012. These debentures are redeemable by annual drawings of Rs,1,00,000 made on March 31 each year. The directors decided to write off discount based on the debentures outstanding each year.
Calculate the amount of discount to be written-off each year. Give journal entries also.
On 1st April 2015, Mayfair Ltd. issued 4,000 9% debentures of ₹ 100 each at a discount of 5% redeemable at a premium of 8%. The debentures were redeemable on 31st March 2019. The company created the necessary minimum amount of debenture redemption reserve and purchased the required amount of debenture redemption investments as per the provisions of Companies Act, 2013.
Pass the necessary journal entries for the redemption of debentures.
Profit on cancellation of own debentures is transferred to ______.
Which of the following given statement is correct.
Statement 1 - "Bond and debentures are same in terms of contents and texture."
Statement 2 - "Bond and debentures are not same in terms of contents and texture."
Consider the following statements.
Statement 1 - "No DRR is required for debentures issued by All India Financial Institutions, regulated by RBI and Banking Companies for both public as well as privately placed debentures".
Statement 2 - DRR is required for debentures issued by All India Financial Institutions, regulated by RBI and Banking Companies for both public as well as privately placed debentures"
No Debenture Redemption Reserve is required for debentures issued by ______.
Shashi Ltd. decided to redeem its 8,000, 11% Debentures of ₹ 100 each at a premium of 10%. The minimum amount transferred to Debenture Redemption Reserve will be: (assume that the company is not listed)
If debentures purchased in the open market are not immediately cancelled, they are treated as:
Which of the following is not true about Debenture Redemption Reserve (DRR)?
Premium on Redemption of Debentures Account is a ______ Account.
What is the nature of Premium on Redemption of Debenture Account?
