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What is Meant by Conversion of Debentures? Describe the Method of Such a Conversion. - Accountancy


Long Answer Question

What is meant by conversion of debentures? Describe the method of such a conversion.

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hen a debenture holder can convert his/her debentures into shares or new debentures after the expiry of a specified period of time, then it is known as redemption of debentures by conversion. As the company does not need to pay any funds for the redemption, so there is no need to maintain Debenture Redemption Reserve (DRR). The new shares or debentures may be issued at par, premium or at discount.

If a debenture holder exercises the conversion option, then the issue price of shares must be equal to or less than the amount actually received from debentures.

Accounting Treatment

  1. For amount due to debenture holders

Debenture A/c



To Debenture holders A/c


(Debentures redeemed)

  1. For discharging liability to the debenture holders

Debenture holders A/c



To Shares/Debentures (New) A/c


(Debenture holder amount discharged)


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NCERT Class 12 Accountancy - Company Accounts and Analysis of Financial Statements
Chapter 2 Issue and Redemption of Debentures
Long Answer Question | Q 10 | Page 135
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