Scribd Logo
Upload

Welcome to Scribd!

  • 89 views

    Debentures

    Uploaded by

    satyanarayan dash
    1. Debentures are loan certificates issued by a company to borrow funds from the public for a fixed period at a fixed interest rate without increasing share capital. 2. Debenture holders are creditors of the company entitled to fixed periodic interest payments but no voting rights; debentures must be redeemed after a fixed time. 3. Debentures offer companies lower cost financing than equity and interest payments are tax deductible, but high debenture usage increases financial risk for companies if profits decline.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Debentures

    Uploaded by

    satyanarayan dash
    89 views3 pages
    1. Debentures are loan certificates issued by a company to borrow funds from the public for a fixed period at a fixed interest rate without increasing share capital. 2. Debenture holders are creditors of the company entitled to fixed periodic interest payments but no voting rights; debentures must be redeemed after a fixed time. 3. Debentures offer companies lower cost financing than equity and interest payments are tax deductible, but high debenture usage increases financial risk for companies if profits decline.

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    1. Debentures are loan certificates issued by a company to borrow funds from the public for a fixed period at a fixed interest rate without increasing share capital. 2. Debenture holders are creditors of the company entitled to fixed periodic interest payments but no voting rights; debentures must be redeemed after a fixed time. 3. Debentures offer companies lower cost financing than equity and interest payments are tax deductible, but high debenture usage increases financial risk for companies if profits decline.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    89 views3 pages

    Debentures

    Uploaded by

    satyanarayan dash
    1. Debentures are loan certificates issued by a company to borrow funds from the public for a fixed period at a fixed interest rate without increasing share capital. 2. Debenture holders are creditors of the company entitled to fixed periodic interest payments but no voting rights; debentures must be redeemed after a fixed time. 3. Debentures offer companies lower cost financing than equity and interest payments are tax deductible, but high debenture usage increases financial risk for companies if profits decline.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Debentures

    By satya sir ( Go commerce)


    Meaning
    If a company needs funds for extension and development purpose without
    increasing its share capital, it can borrow from the general public by issuing
    certificates for a fixed period of time and at a fixed rate of interest. Such a
    loan certificate is called a debenture. Debentures are offered to the public
    for subscription in the same way as for issue of equity shares. Debenture is
    issued under the common seal of the company acknowledging the receipt
    of money.

    Features of Debentures:

    The important features of debentures are as follows:

    1. Debenture holders are the creditors of the company carrying a fixed rate
    of interest.

    2. Debenture is redeemed after a fixed period of time.

    3. Debentures may be either secured or unsecured.

    4. Interest payable on a debenture is a charge against profit and hence it is a


    tax deductible expenditure.

    5. Debenture holders do not enjoy any voting right.

    6. Interest on debenture is payable even if there is a loss.


    Advantage of Debentures:
    Following are some of the advantages of debentures:

    (a) Issue of debenture does not result in dilution of interest of equity


    shareholders as they do not have right either to vote or take part in the
    management of the company.

    (b) Interest on debenture is a tax deductible expenditure and thus it saves


    income tax.

    c) Cost of debenture is relatively lower than preference shares and equity


    shares.

    (d) Issue of debentures is advantageous during times of inflation.

    (e) Interest on debenture is payable even if there is a loss, so debenture


    holders bear no risk.

    Disadvantages of Debentures:

    Following are the disadvantages of debentures:

    a) Payment of interest on debenture is obligatory and hence it becomes


    burden if the company incurs loss.

    (b) Debentures are issued to trade on equity but too much dependence on
    debentures increases the financial risk of the company.
    (c) Redemption of debenture involves a larger amount of cash outflow.

    (d) During depression, the profit of the company goes on declining and it
    becomes difficult for the company to pay interest.

    You might also like