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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 DebenturesDuration (min:sec)
Introduction to  Preference Share 
Intro to Topic00:49
Index01:23
What are Preference Share11:21
Redemption of Preference Share 
What is Redemption of Preference Share07:10
Prov of Companies Act on Redemption15:33
Accounting Entry for Redemption10:42
How to Calculate Proceeds of Fresh Issue06:11
Example of Proceeds of Fresh issue12:08
Redemption out of profit07:31
Redemption combination of Fresh Issue & Capitalisation24:40
Quiz14:34
Conclusion07:21
Introduction to Debentures 
Index02:14
Why Debentures05:11
What are Debentures04:16
Diff Between Equity vs. Debentures06:01
Types of Debentures05:14
Quiz06:17
Issue of Debentures 
Issue and Redemption of Debenture07:13
Accounting Entry21:45
Examples of Accounting Entry14:06
Issue of Deb in Instalments01:39
Issue of Deb for consideration other than cash14:04
Deb issued as collateral security09:13
Quiz09:13
Treatment of loss on issue of debenture08:30
Interest on Debentures10:50
Accrued Interest on Debenture05:21
End of Quiz10:08
Additional Questions12:09
Conclusion07:49
Total4:40:36

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


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