Payment flow of convertible debenture remunerations. A debenture is written acknowledgement of debt by a. Final accounts of companies including managerial remuneration, disposal of profits and issue of bonus shares. Amendments to the companies share capital and debenture. The company doesnt require to pay it back until it is liquidated debentures and bonds are the debt instruments issued by a company t. Company why should issue debentures and shares, which one should issue better for company and why answer alluri srikanth reddy. Issue of shares is the process in which companies allot new shares to shareholders. Shares may be further subdivided into different types, as follows. Companies act, 1956 has not laid down any conditions for the issue of debentures at a discount as have been laid down in case of issue of shares at discount. Sometimes, a company purchases a running business assets and liabilities and issues to vendor, debentures as consideration. But the funds raised by the issue of shares are seldom adequate.
These debentures like any other pays coupon at stipulated time say one year or at 6 months as mentioned at time of issue. The perpetual debentures shall not be paid back and become redeemable only on winding up of a company or on appointment of recoverer as per the terms of agreement of the issue of debentures. The terms of issue, however provided that the debentures could be redeemed by giving 6 months notice at any time after 5 years at a premium of 4% either by payment in cash or by allotment of preference shares andor other debentures according to the option of the debentureholders. So, companies go for initial public offering ipo and if they had already gone for ipo they go for follow on.
Differences between shareholders and debentures holders a shareholder is the joint owner of a company. The investment of debentures does not imply a property right, only an obligation for issuer to pay interest and whole lending in defined periods. The following are some of the differences between equity shares and debentures. Debentures and shares when you buy shares, you become one of the owners of the. Traditionally, the government issued bonds, but these days, bonds are also being issued by semigovernment and nongovernmental organisations. Answer the following give adequate working notes in support of your answer. Forfetire and reissue of shares 4 share capital total capital of the company is divided into a number of small indivisible units of a fixed amount and each such unit is called a share. Chapter1 accounts of amalgamation of companies jhbwc. Companies need to follow certain procedures for issue of debentures to raise money. Here we are providing information pertaining to redemption of debentures.
In this article we will discuss about the top twenty five accounting problems on shares and debentures with their relevant solutions. A company can issue can shares at the start of the company or when it needs fund. It is called issue of debentures in consideration, other than cash. Debenture includes debenture stock, bonds and any other securities of a company whether constituting a charge on the assets of a company or not as defined in the companies act. Shares, debentures, bonds, securities of the government. When a company issues new shares, it shares the ownership with new shareholders forever. Shares and debentures our services company law club. Final accounts of companies conceptual framework, preparation and presentation of financial statements, schedule vi, interpretation and scrutiny of balance sheet treatment of profit prior to incorporation, preoperative and preliminary expenses preparation of final accounts under company law 4. A limited company issued 25,000 ordinary shares of rs. Indian companies acts limits the issue of such bonds and thus these are very rarely issued by corporates these days. Private placement of shares implies issue and allotment of shares to a selected. Notes 275 issue of shares accountancy accounting for.
A debenture is the traditional name given to a loan agreement where the borrower is a company. Acquisition of business and profit prior to incorporation valuation of shares and goodwill. A corporation can raise capital through debentures when it needs the money and pay it back when it has a fund surplus. The issue of debenture, in one side creates the obligation for the payment of interest at a fixed rate and in another side, it causes an increase in earning per share due to comparatively less number of shares issued. What is the difference between them answer prasanna.
The procedure for the issue of debentures is as follows. Shareholders can be either individuals or corporates. Valuation of bonds and shares valuation of bondsdebentures. Issue of a co shares on merger 1 2 3 x% merger c co transfer of wos shares issue of ncds pref shares issue of shares on merger 2 3 4 1. In case of these bonds the maturity value or terminal value. Any amount raised by the issue of debentures secured by a first charge or a charge ranking paripassu with the first charge on any assets referred 73 proviso to in schedule iii of the act excluding intangible assets of the company or debentures compulsorily convertible into shares of the. Capital or sundry members with balance on realisation account. It is normally a loan that should be repaid on a specific date, but some debentures are irredeemable securities sometimes referred to as perpetual debentures.
These shares represent a part of the company, so the shareholder becomes a part owner. Debentures are issued for a limited time and repaid in full. Issue of shares equity shares and preference shares. Another way of classification is bearer debentures and registered debentures. Such shares are transferable by its members except in case of a private limited company, which may have certain restrictions on such transferability. Typically, a debenture will set out the terms of the loan. Bond is also an instrument of acknowledgement of debt. A debenture is one of the most typical forms of long term loans that a company can take. Pdf corporate accounting i kabir tahir hamid academia. The fixed value of a share, printed on the share certificate, is called nominal par face value of a share. Problem 1 issue of shares at parjournal, cash book and balance sheet.
Sometimes on nonpayment of call money, we see forfeiture and reissue of shares. Nowadays, investment in shares and debentures has taken a dominant position in the society, as people of different ages, religion, sex, and race invest their. For an amalgamation in the nature of merger, pooling of interest method. Sundry members with value of shares in new business issued to them. A shareholder must find a buyer if he wants to dispose of his stake. Thus, opening up of the capital market in the 1990s brought a large section of investors into the nim and triggered an equity boom. Capital, debentures, final accounts of companies, corporate restructuring, consolidation of accounts, valuation of shares and intangible assets, liquidation of company, corporate financial reporting and accounting. Mergers and restructuring key provisions under companies act, 20 ficci.
In this blog post, pritishree dash, a student of national university of advanced legal studies, kochi, who is currently pursuing a diploma in entrepreneurship administration and business laws from nujs, kolkata, discusses if debentures can be converted into shares and vice versa. Shares are valued according to the various principles in different markets, but a basic premise is that a share is worth the price at which a transaction would be likely to occur were the shares to be sold. Can debentures be converted into shares and viceversa. Accounting for share capital issue of shares equity and preference shares. The rate of conversion and the period after which the conversion will take effect are declared in the terms and conditions of the agreement of. Company why should issue debentures and shares, which one should issue better for company and why. What are the guidelines and procedures for issue of. Business purchase and underwriting, profit prior and post incorporation. Transfer fictitious assets like discount on share or debenture, underwriting.
The company follows the rules prescribed by companies act 20 while issuing the shares. Thus, a company means an association of persons formed for some common purpose or object. Company why should issue debentures and shares, which one. The initial recognition of the intangible assets is done by the cost of acquisitionconstruction. Types of debentures basis redemption, convertibility. Difference between shares and debentures types of debentures modes of issue of debentures. By lawfarm team march 19, 2018 capital is needed by the companies, both private and public to increase their productivity or market reach or to purchase latest modern equipment and machines. According to the terms of issue of the debentures, the debentureholders may be given the right to exercise the option to convert their debentures into equity shares or preference shares at a stipulated rate within a specified period. Thanks for a2a, shares or equity shares are the capital raised by an entity by selling a part of its ownership. What is the difference between shares, bonds, and debentures. Debenture interest is payable on 1 april and 1 october each year.
Cumulative preference shares are similar to preference shares, but if in any one year, because of the circumstances described above, the dividend is not paid it accumulates and is carried forward until such time as there are sufficient profits to cover both current dividends on the shares and the arrears. The shares imply property rights to its owner and depending the type of share, have right to vote in actionists board. The liquidity of markets is a major consideration as to whether a share is able to be sold at any given time. The ownership of a company is broken into units we know as shares. The companies share capital and debenture amendment rules, 2016 enable startups to offer more incentives in terms of sweat equity and esop issue by relaxing the rules to an extent. Unit 1 introduction to company accounts aru academy. This chapter deals with the accounting for share capital of companies. Redemption out of the proceeds of fresh issue of shares or debentures 116. Corporate accounting manonmaniam sundaranar university. Company debenture is one of the important sources of finance for large companies, in addition to equity stocks, bank loans, and bonds. Preference shares and debentures are two different types of financial instruments. An actual sale transaction of shares between buyer and seller is. We describe here about some major difference between shares and debentures though both play a vital role in a countrys economy.
Difference between shares and debentures difference between. This is an inclusive definition and amounts to borrowing of monies from the holders of debentures on such terms and conditions subject to which the debentures have been. One of the type of debentures are convertible debentures or just convertibles. Substituted by the companies share capital and debentures amendment rules, 2015. A company raises its capital by means of issue of shares.
Here is a compilation of top six accounting problems on issue of shares with its relevant solutions. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Convertible debenture holders have an option of converting their holdings into equity shares. Meaning of company and features the word company is derived from two latin words com and panis, where com means together and panis means bread.