In order for a company to borrow money the creditors must have security. The creditor wants security to protect its position in case of the insolvency of the company; equally the company wants to be able to borrow without having to give such security to the lender that would restrict its ability to trade. There are two types of security—fixed charges and floating charges. A fixed charge is a charge over a specific identifiable asset or property. A floating charge is a charge over a fluctuating
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The following are the main difference between a debenture and a share: • A person having the debentures is called debenture holder whereas a person holding the shares is called shareholder. • Debenture holder is a creditor of the company and cannot take part in the management of the company while a shareholder is the owner of the company. It is the basic distinction between a debenture and a share • Debenture holder is a creditor of the company and cannot take part in the management
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A debenture can be defined as a loan issued by a firm which usually involves a fixed repayment schedule‚ in terms of both time and interest. If the firm keeps to the terms of the debenture‚ the person who owns the debenture has no claim on the company and no voting rights. However if the firm were to default on the repayment of a debenture‚ the holders of the debentures will have right over the company. A Debenture (usually not backed by collaterals) is a long- term debt instrument‚ issued by governments
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Fixed and Floating Charges In the event where the borrower is a company a debenture will be issued. Under Section 4(1) of Companies Act (CA) 1965‚ debenture is the document that proves a company is actually borrowing money from the bank but it is not a charge. It can be divided into two types namely secured debenture and unsecured debenture. An unsecured debenture simply means that there is no security being used. It is similar to IOU as it is merely telling that the borrower (company) is borrowing
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DEBENTURES I. Sale/Transfer of Shares/Bonds/Debentures by NRIs to Residents In order to facilitate quick transfer of shares/bonds/debentures held by NRIs to residents‚ Reserve Bank has granted general exemptions for sale/transfer of shares/bonds/debentures through stock exchanges in India subject to fulfillment of certain conditions. Applications for sale/transfer of shares/bonds/debentures held by NRIs/OCBs by private arrangement i.e. other than through stock exchange should be made to Reserve
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UNIT 5: ACCOUNTING FOR DEBENTURES LEARNING OBJECTIVES I) II) III) IV) V) VI) VII) IX) X) Understand the meaning and features of debentures. Differentiate between shares and debentures. Understand different classes of debentures Journal entries regarding issue of debentures for cash and for consideration other than cash. Accounting treatment of debentures issued as collateral security Accounting treatment of issue and redemption of debentures at par‚ discount and at premium. Understand the methods
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granted a loan‚ the lender may become a debenture-holder. A debenture has never been satisfactorily defined. In Levy v. Abercorris Slate and Slab Co.(1883) 37 Ch D 260‚ Chitty J said “In my opinion a debenture means a document which either creates a debt or acknowledges it‚ and any document which fulfils either of these conditions is a debenture.” Shareholders are members of the company and their rights have been described elsewhere in this book. Debenture-holders are creditors of the company and
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financing methods listed in Section A. Section A Leasing arrangements Long-term bonds Debt with warrants Friends or relatives Common stock: non-rights Preferred stock (nonconvertible) Common stock: rights offering Convertible debentures Factoring Section B Boudoir’s Inc. Timberland Power & Light Ripe and Fresh Canning Company Piper Pickle Company Copper Mountain Mining Company Bull Gator Saloon and Dance Hall Golden Gate Aircraft Corporation Schooner
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1. Effective Interest Rate on the new 10% debentures = 14.318% For the 10% debentures‚ the market value of 1 share is $19.5 (given) The equivalent of this is a cash offer of $3/share and a 10% subordinated debenture of face value of $23. So the PV (10% subordinated debentures with FV $23) = $19.5 - $3 = $16.5 The effective interest rate (yield) on the above is that interest rate ‘r’ that gives the following PV (Per period payment of ($23*5% i.e. $1.15) over 40 periods @ r) + PV
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To expand the production‚ Furniture Trading Sdn Bhd (FTSB) bought a piece of industrial land with an existing factory building. The cost to buy the land is RM 5 million. FTSB and Oneoff Business Sdn Bhd which is the vendor of the land are carry out a Sales & Purchase Agreement‚ identified as Title No. 1370‚ Lot No. 2469‚ Mukim of Batu‚ Muar‚ Johor. FTSB is financing the RM 4 million which is 80% of the RM 5 million with the Export Bank. Export Bank has take the industrial land with property as a
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