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.

CA CPT Exam  

With Sheela Warrier.Duration:4hrs40min

Redemption of Preference Share & Issue of Debentures Duration (min:sec)
Introduction to  Preference Share  
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{modal https://www.youtube.com/embed/SFgoHGVz9pA?autoplay=1;rel=0|width=780|height=439|title=Index}Index{/modal} 01:23
{modal https://www.youtube.com/embed/-ft5rrgNoKA?autoplay=1;rel=0|width=780|height=439|title=What are Preference Share}What are Preference Share{/modal} 11:21
Redemption of Preference Share  
{modal https://www.youtube.com/embed/hZ6Tv3YL0mk?autoplay=1;rel=0|width=780|height=439|title=What is Redemption of Preference Share}What is Redemption of Preference Share{/modal} 07:10
{modal https://www.youtube.com/embed/b6104eztE2U?autoplay=1;rel=0|width=780|height=439|title=Prov of Companies Act on Redemption}Prov of Companies Act on Redemption{/modal} 15:33
{modal https://www.youtube.com/embed/-qMb_DiXc-s?autoplay=1;rel=0|width=780|height=439|title=Accounting Entry for Redemption}Accounting Entry for Redemption{/modal} 10:42
{modal https://www.youtube.com/embed/SLR5XDpYzqE?autoplay=1;rel=0|width=780|height=439|title=How to Calculate Proceeds of Fresh Issue}How to Calculate Proceeds of Fresh Issue{/modal} 06:11
{modal https://www.youtube.com/embed/ZcBfCub8sjk?autoplay=1;rel=0|width=780|height=439|title=Example of Proceeds of Fresh issue}Example of Proceeds of Fresh issue{/modal} 12:08
{modal https://www.youtube.com/embed/2VbU_yZH5Ec?autoplay=1;rel=0|width=780|height=439|title=Redemption out of profit}Redemption out of profit{/modal} 07:31
{modal https://www.youtube.com/embed/R2gcpLgHaZc?autoplay=1;rel=0|width=780|height=439|title=Redemption combination of Fresh Issue & Capitalisation}Redemption combination of Fresh Issue & Capitalisation{/modal} 24:40
{modal https://www.youtube.com/embed/HboRtL-fFWo?autoplay=1;rel=0|width=780|height=439|title=Quiz}Quiz{/modal} 14:34
{modal https://www.youtube.com/embed/S4JUYHEJ2TI?autoplay=1;rel=0|width=780|height=439|title=Conclusion}Conclusion{/modal} 07:21
Introduction to Debentures  
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{modal https://www.youtube.com/embed/44v3Tppx3B4?autoplay=1;rel=0|width=780|height=439|title=Why Debentures}Why Debentures{/modal} 05:11
{modal https://www.youtube.com/embed/oSMr9xpu_Zc?autoplay=1;rel=0|width=780|height=439|title=What are Debentures}What are Debentures{/modal} 04:16
{modal https://www.youtube.com/embed/Hk-wqepVGCk?autoplay=1;rel=0|width=780|height=439|title=Diff Between Equity vs. Debentures}Diff Between Equity vs. Debentures{/modal} 06:01
{modal https://www.youtube.com/embed/fu2XAj_SFME?autoplay=1;rel=0|width=780|height=439|title=Types of Debentures}Types of Debentures{/modal} 05:14
{modal https://www.youtube.com/embed/YiCN09UMt7c?autoplay=1;rel=0|width=780|height=439|title=Quiz}Quiz{/modal} 06:17
Issue of Debentures  
{modal https://www.youtube.com/embed/P9MShAEgbqA?autoplay=1;rel=0|width=780|height=439|title=Issue and Redemption of Debenture}Issue and Redemption of Debenture{/modal} 07:13
{modal https://www.youtube.com/embed/uTNC0Wk5YMk?autoplay=1;rel=0|width=780|height=439|title=Accounting Entry}Accounting Entry{/modal} 21:45
{modal https://www.youtube.com/embed/0aSOGycsW5E?autoplay=1;rel=0|width=780|height=439|title=Examples of Accounting Entry}Examples of Accounting Entry{/modal} 14:06
{modal https://www.youtube.com/embed/qAc_fJaOLp0?autoplay=1;rel=0|width=780|height=439|title=Issue of Deb in Instalments}Issue of Deb in Instalments{/modal} 01:39
{modal https://www.youtube.com/embed/JuqqaHEVhRc?autoplay=1;rel=0|width=780|height=439|title=Issue of Deb for consideration other than cash}Issue of Deb for consideration other than cash{/modal} 14:04
{modal https://www.youtube.com/embed/2rR2a-EGawI?autoplay=1;rel=0|width=780|height=439|title=Deb issued as collateral security}Deb issued as collateral security{/modal} 09:13
{modal https://www.youtube.com/embed/iRp-xCn2wl0?autoplay=1;rel=0|width=780|height=439|title=Quiz}Quiz{/modal} 09:13
{modal https://www.youtube.com/embed/AlxWdWrv4r4?autoplay=1;rel=0|width=780|height=439|title=Treatment of loss on issue of debenture}Treatment of loss on issue of debenture{/modal} 08:30
{modal https://www.youtube.com/embed/mJ2FP0nqcAs?autoplay=1;rel=0|width=780|height=439|title=Interest on Debentures}Interest on Debentures{/modal} 10:50
{modal https://www.youtube.com/embed/3pq2t9NJ3nE?autoplay=1;rel=0|width=780|height=439|title=Accrued Interest on Debenture}Accrued Interest on Debenture{/modal} 05:21
{modal https://www.youtube.com/embed/bvQBPJgY3Rc?autoplay=1;rel=0|width=780|height=439|title=End of Quiz}End of Quiz{/modal} 10:08
{modal https://www.youtube.com/embed/fC9uKidaCsQ?autoplay=1;rel=0|width=780|height=439|title=Additional Questions}Additional Questions{/modal} 12:09
{modal https://www.youtube.com/embed/LVwi29ytFdQ?autoplay=1;rel=0|width=780|height=439|title=Conclusion}Conclusion{/modal} 07:49
Total 4:40:36


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

What are Preference Shares?

Preference Shares have preferential rights:
a) Payment of Dividend
b) Repayment of Capital
No voting powers
Fixed rate of dividend

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

Why Debentures?

Company Needs funds? 500 Crs
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
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

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