CPT Chapter Redemption of Preference Shares and Issue of Debentures
CA CPT syllabus “Redemption of Preference Shares and Issue of Debentures” deals with how money is raised by companies other than through equity shares or loans from bank. Preference shares are issued by a company to owners of the company with preferential rights on payment of dividend and payout at the time of liquidation. Debentures on the other hand, are borrowings or loan taken by companies from general public at a specified rate of interest. In this chapter we will learn the accounting entries for redemption of preference shares and issue of debentures.
With Sheela Warrier.Duration:4hrs40min
Notes
Few things covered by us:
Company Accounts
What are Preference Shares ?
What is the meaning of Redemption ?
Companies Act and Redemption of Preference Shares
Accounting entries in different situations
Quiz
Summary
What are Preference Shares?
Preference Shares have preferential rights:
a) Payment of Dividend
b) Repayment of Capital
No voting powers
Fixed rate of dividend
Redeemable
What is Redemption ?
Pay back
Date of maturity
Premium or Par
Provisions of Companies Act
Availability of Funds
Companies Act
(Section 80, Companies Act 1956; Section 55, Companies Act 2013)
a) Only fully paid up Preference Shares can be redeemed
b) Preference Shares can be redeemed either:
i) Out of proceeds of a fresh issue of Shares or
ii) Out of profits available for distribution- Capital Redemption Reserve
c) Premium on redemption ----> Securities Premium/Profit & Loss a/c
Proceeds of Fresh Issue
Proceeds = FV of Preference Share Capital Redeemed
When shares are issued at par: Amount Received/Face Value of issue
When shares are issued at premium: Face Value
When shares are issued at discount: Amount Received
Issue of Debentures
What are Debentures ?
Shares vs Debentures
Features of Debentures
Types of Debentures
Accounting entries on issue & redemption of Debentures
Issue of Debentures as Collateral Security
Issue of Debentures for Consideration other than Cash
Discount on issue of Debentures
Interest on Debentures
Quiz
Why Debentures?
Company Needs funds? 500 Crs
Options:
Share Issue to Public
Bank Loan
Loan from Public
Fixed Denomination of Rs.100,1000,10000,
Also called Bonds
What are Debentues ?
A certificate representing Loan to company
Secured
Interest at fixed rate on specific dates
Interest is a Charge against profits
May be Listed on the stock exchange
Maybe issued at par, premium or discount
Repaid in cash, or Shares or other debentures
Types of Debentues
Secured and Unsecured Debentures
Fixed charge
Floating charge
Convertible and Non-Convertible Debentures
Redeemable and Irredeemable Debentures
Registered and Bearer Debentures
First Mortgage and Second Mortgage Debentures
Issue of Debentures
Debentures issued for cash
Debentures issued for consideration other than cash
Debentures issued as collateral
Accounting Principle
Issued either at par or premium or discount
Redemption either at par or premium or discount
Conservatism concept :
Provide for losses if anticipated
Profits to be booked only when earned
CPT Exam Exposure
Company Accounts Introduction,Issue, Forfeiture and Re-issue of Shares
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