The Debentures that are payable on the expiry of the specific period either in Lumpsum or in installments during life time of the company are called:
Redeemable Debentures
Understanding Debentures and Their Repayment
This question asks about a specific type of debenture that is repaid after a certain period. Let's break down the characteristics described: payable on the expiry of a specific period, either in a lump sum or in installments during the company's life.
Defining Redeemable Debentures
Redeemable debentures are those debentures which are redeemed or repaid by the company on the expiry of a specific period, as stated in the terms of issue. The repayment can happen in one go (lump sum) at the end of the period, or it can be done in parts (installments) spread over a certain duration within the debenture's life.
The description in the question perfectly matches the definition of redeemable debentures. They have a fixed maturity date or a redemption schedule. Once this period is over, the company is obliged to pay back the principal amount to the debenture holders.
Comparing Options
Let's look at why the other options do not fit the description:
- Secured Debentures: These are debentures that are secured against the assets of the company. If the company fails to pay back the debenture holders, they have a right to recover their dues from the specific assets charged. Security relates to the assurance of repayment, not the timing or method of repayment on expiry of a specific period.
- Perpetual Debentures: Also known as irredeemable debentures, these debentures do not have a fixed repayment date. The principal amount is generally not repaid during the lifetime of the company. They are effectively a form of permanent capital for the company, although interest payments continue. This is the opposite of being payable on the expiry of a specific period.
- Specific Coupon Rate Debentures: These debentures have a fixed rate of interest (coupon rate) that is paid periodically to the debenture holders. The coupon rate relates to the interest payment, not the principal repayment schedule or the timing of redemption.
Based on the definitions, only redeemable debentures are characterized by being payable on the expiry of a specific period, either as a lump sum or in installments. Therefore, this is the correct type of debenture being described.
Revision Table: Types of Debentures based on Repayment
Understanding the different types helps clarify the concept.
| Type of Debenture | Repayment Feature | Fit with Question? |
|---|---|---|
| Redeemable Debentures | Repaid on expiry of a specific period (lump sum or installments) | Yes, matches the description. |
| Perpetual Debentures | No fixed repayment date, principal not usually repaid during company's life | No, contradicts the description. |
| Secured Debentures | Backed by specific assets; repayment timing depends on other classifications (like redeemable or perpetual) | No, security is not about the expiry period repayment. |
| Specific Coupon Rate Debentures | Fixed interest rate; repayment timing depends on other classifications | No, coupon rate is about interest, not principal repayment timing. |
Additional Information: Understanding Debenture Features
Debentures are important financial instruments for companies to raise debt capital. Besides the repayment terms, debentures can be classified based on various other features:
- On the basis of Security: Secured or Unsecured Debentures.
- On the basis of Transferability: Registered Debentures or Bearer Debentures.
- On the basis of Convertibility: Convertible Debentures or Non-Convertible Debentures.
- On the basis of Coupon Rate: Specific Coupon Rate Debentures or Zero Coupon Rate Debentures.
Each of these classifications highlights a different aspect of the debenture, such as whether they are backed by assets, how they are transferred, if they can be converted into shares, or how interest is paid. The question specifically focuses on the repayment or redemption aspect over a specific period, which is the defining characteristic of Redeemable Debentures.
Important Questions from Accounting for Debentures
Balance of Debenture Redemption Reserve A/c after the redemption of debenture is credited to:
Calculate the number of Debentures issued by A Ltd. for consideration other than cash:
‘Discount on issue of debenture’, which is to be written off under one operating cycle is shown under:
If the consideration for issue of Debentures is less than the amount of debentures issued, then the difference is:
When Debentures are issued at par and are redeemable at a premium, the Loss on such an issue is debited to:
