Debentures are offered to the public for subscription in the same way as for issue of equity shares. People invest their funds in shares, debentures, fixed deposits, national saving certificates, life insurance policies, provident fund etc. But the funds raised by the issue of shares are seldom adequate to meet their long term financial needs of a company. Nowadays, investment in shares and debentures has taken a dominant position in the society, as people of different ages, religion, sex, and race invest their hard earned money, with an aim of getting better returns. In order to compensate the investors, such debentures are issued at substantial discount and the difference between the nominal value and the issue price is treated as the amount of interest. An actual sale transaction of shares between buyer and seller is. Debentures are actually the most common way for large companies to borrow. Cumulative preference shares are similar to preference shares, but if in any one year, because of the circumstances described above, the dividend is not paid it accumulates and is carried forward until such time as there are sufficient profits to cover both current dividends on the shares and the arrears. A share is a part of the owned capital whereas a debenture is a part of borrowed capital. Such borrowings may take the form of both shortterm and longterm borrowings. A man sold 400 rs 20 shares of a company paying 5% at rs 18 and invested the proceeds in rs10 shares of another company paying 7% at rs12. But before moving towards the types of debentures, lets see what is debenture.
This chapter deals with the accounting for share capital of companies. Besides raising capital by the issue of shares, a company may supplement its capital by borrowings. Substituted by the companies share capital and debentures amendment rules. Difference between shares and debentures six main types of share capital as the risk of the share is transferred to the underwriters, they therefore, take the underwriting commission as agreed between the parties and also authorized by the articles. Each share forms a unit of ownership of a company and is offered for sale so as to raise capital for the company. On the other hand, a nonconvertible debenture is those which cannot be converted into equity shares.
They deal with a miscellany of matters, for example, the register of debenture holders, rights of inspection of the register and to copies of the register, trust deed and other documents, and meetings of debenture. A debenture is a type of debt instrument that is not secured by physical assets or collateral. What is underwriting of shares commerce and management. Shares may be further subdivided into different types, as follows. Difference between shares and debentures meaning, definition.
It may or may not create a charge on the assets of a company as security. Here, the fund is a borrowed capital, which makes the holder of debenture a creditor. The number of shares outstanding times the share price gives the market capitalization of the company, which if the trading price held constant would be sufficient to purchase the company. In the same way you can see your ownership of a company as a slice of pie, cut out of a bigger pie. Introduction in corporate accounting, commerce students have to learn accounting treatment of. Total shares capital of a company is divided into a number of small invisible units of a fixed amount called a share. Hence, most companies turn to raising longterm funds also through debentures. Debentures are backed only by the general creditworthiness and reputation of the issuer. It represents the interest of a shareholder in the company, measured for the purposes of liability and dividend. The term debenture is derived from the latin word debere which means to a money owing.
When a company wishes to raise capital but does not want to dilute their equity they issue debentures. Share capital of a company refers to the amount invested in the company for it to. Specimen presentation of debenture certificates for different. A debenture may, be defined as document issued by the company as an evidence of debt. Preference shares have the characteristics of both equity shares and debentures. The shares imply property rights to its owner and depending the type of share, have right to vote in actionists board.
Shares can be broadly divided into two categories equity and preference sh. If you own a share, you own a portion of a company. In fact, this innovation was a remarkable one which paved the way. Procedure for issue of various types of shares and debentures. Convertible debentures usually have a lower interest rate compared to non. Traditionally, the government issued bonds, but these days, bonds are also being issued by semigovernment and nongovernmental organisations. A debenture is a debt tool used by a company that supports long term loans. Treasury shares are authorized, issued, and held by the company itself. Let us see the types of debentures issued, terms of issue, the redemption of debentures and the accounting treatment for the same. Redeemable debenture is a debenture which is redeemedrepaid on a predetermined date and at predetermined price. A share represents ownership of the company whereas a debenture is only acknowledgement of debt. Shortterm borrowings by way of promissory notes, bills of exchange, bank overdrafts, cash credits, public deposits, etc.
Lets start a new topic in company accounts the issue of debentures along with its introduction, meaning and accounting in the books. Financial accounting pdf notes, syllabus 2020 bba, bcom. Both corporations and governments frequently issue this. Debentures meaning, issue, features, types, advantages, disadvantages the term debenture is derived from the latin word debere which means to owe a debt. This video is suitable for class 12, ca, cs, cma, bba, bcom. About shares and debentures introduction in corporate. These debentures do not carry a specific rate of interest.
Issue and redemption of debentures 77 b zero coupon rate debentures. Convertibility in debentures denotes conversion of a debenture to equity shares. Types of shares and debentures preferred stock financial capital. View essay about shares and debentures from commerce 1 at andhra loyola college autonomous, krishna. Rarely, investors current money income exactly balances with their consumption desires.
The legal term debenture originally referred to a document that either creates a debt or acknowledges it, but in some countries the term is now used. The board of directors decides on how much of the dividends will be given to equity share holders. Sep 21, 2017 lets start a new topic in company accounts the issue of debentures along with its introduction, meaning and accounting in the books. The liquidity of markets is a major consideration as to whether a share is able to be sold at any given time. Issue of shares by cacma santosh kumar download chapter pdf. How many rs10 shares did he buy and what was the change in his income. The return on shares is known as dividend while the return on debentures is called interest. For example debentures can have the option to be converted into either ordinary or preference shares after a certain date. Introduction every company limited by shares must have a share capital. Two types of interest rates are used to determine the purchase price of a bond. The important features of debentures are as follows. Profit and loss account interest on debentures is charge against profit and loss account. Share, debentures or other interest of any member in a company shall be movable property. Debenture is issued under the common seal of the company acknowledging the receipt of money.
Introduction a company raises its capital by means of issue of shares. Preference shares and debentures are two different types of financial. Bond is also an instrument of acknowledgement of debt. If one has constraints like time, wherewithal, small amount etc. The shares represent ownership of the shareholders in the company. Sometimes, investors may have more money than they want to spend. The following are some of the differences between equity shares and debentures. Difference between shares and debentures with similarities. An introduction to the indian stock market trading mechanism trading at both the exchanges takes place through an open electronic limit order book in which order matching is done by the trading. It can generally be bought or sold through the stock exchange at a rice above or below its face value.
The investment of debentures does not imply a property right, only an obligation for issuer to pay interest and whole lending in defined periods. A part of these instruments are converted into equity shares in the future at notice of the issuer. Convertible debenture can be converted into equity shares after the expiry of a specified period. What happens to new issues is of vital importance to the growth of the. Issue of shares by cacma santosh kumar download chapter. Intro to convertible debentures march, 2009 introduction to convertible debentures convertible debentures are hybrid securities which offer advantages of both bonds and equities. The original sum is repaid at a specified future date or it is converted into shares or other debentures. In the case of an introduction a draft introductory document prepared in compliance with the requirements of rule 3.
If a corporation wants funds for extension and development purposes while not increasing its share capital, it will borrow from the final public by issuance certificates for a hard and fast amount of your time and at a hard and fast rate of interest. A debenture which is repaid before the other debenture is known as the first debenture. There are different types of debentures, which probably used now days for raising finance. Issued shares is the sum of shares outstanding and treasury shares. Fixed value of a share, printed on the share certificate, is called nominal valuepar valueface value. Fully convertible debentures are those debentures which are fully converted into specified number of equity shares after predetermined period at the option of the debenture holders. Shares are valued according to the various principles in different markets, but a basic premise is that a share is worth the price at which a transaction would be likely to occur were the shares to be sold. Introduction, forfeiture of shares, reissue of shares, issue of bonus shares, rights issue, share split, buy back of shares, redemption of preference shares, debentures financial accounting notes pdf. The preference shares are market instrument issued by the companies to raise the capital. Share is the capital of the company, but debenture is the debt of the company. May 26, 2010 10 prefrence share these are other type of shares.
Debentures are backed only by the general creditworthiness and reputation of. Like ordinary bonds they offer regular interest income through coupon payments and a degree of downside protection not found in equity. Underwriting of shares by cacma santosh kumar download pdf from description duration. A legal appraisal of the concepts of shares and debentures as.
Debenture definition, meaning, features, types, videos. Introduction 2 organisational structure of financial system 3 constituents of financial system 3 financial markets 3 money market 3 capital market 3 need for capital market 4 functions of the capital market 4. Intro to convertible debentures the cash payback period is the number of years it takes for the dollar premium to be recovered through the yield pickup of the debenture. Debentures or bonds are debt instruments which pay interest over their life time and are used by corporate to raise medium or long term debt. Mar 25, 2020 an introduction to the indian stock market trading mechanism trading at both the exchanges takes place through an open electronic limit order book in which order matching is done by the trading. These debentures are for a fixed period and a fixed interest rate that can be payable yearly or halfyearly. A longterm debt instrument issued by the company under its common seal, to the debenture holder showing the indebtedness of the. A debenture is a debt security issued by a corporation or government.
Difference between shares and debentures with similarities and. Specimen presentation of debenture certificates for. He sells shares worth rs 24000 at a premium of 5% and the rest at a discount of 10%. Share capital of a company refers to the amount invested in the company for it to carry out its operations. This simple introduction has been written to help novice investors get a basic understanding of how investment works.
In corporate finance, a debenture is a medium to longterm debt instrument used by large companies to borrow money, at a fixed rate of interest. Debentures or bonds are debt instruments which pay interest over their life time and are used by corporate to raise medium or long term debt capital. Cumulative preference shares are similar to preference shares, but if in any one year, because of the circumstances described above, the dividend is not paid it accumulates and is carried forward until such time as there are sufficient profits to cover both. The specific provisions on debentures are currently contained in sections 74a to 79 of the co. Debentures meaning, issue, features, types, advantages. Debentures are also offered to the public at large, like equity shares. It depends on the amount of profits made by the company. Its no accident that at the share centre our motto is simply easier. May 05, 2015 convertibility in debentures denotes conversion of a debenture to equity shares. The holder of shares is known as a shareholder while the holder of debentures is known as debenture holder. Debentures are issued to the public as a contract of repayment of money borrowed from them. Every company limited by shares must have a share capital. The word debenture translates to a written instrument as debt. Nov 19, 2018 difference between shares and debentures last updated on november 19, 2018 by surbhi s nowadays, investment in shares and debentures has taken a dominant position in the society, as people of different ages, religion, sex, and race invest their hard earned money, with an aim of getting better returns.
298 711 436 1498 740 1090 608 557 767 300 1077 1463 1378 960 804 416 1083 863 681 1128 1015 1236 478 1335 206 957 747