Question

Write short note on Methods of redemption of debentures. 

Answer 1

Meaning : -
Redemption of debentures refers to payment of the amount of debentures by the enterprise. When debentures are reclaimed, liability on account of debentures is being discharged.

Method of Redemption of Debentures :

• Payment in lump sum : The enterprise reclaims the debentures by paying the fund in lump sum (roundsum) to the debenture holders during the maturity hereof as per the terms and conditions of issue.
• Payment in installments: Under this method, usually redemption of debentures is paid in instalments on the particular date during the time in the position of the debentures. The total amount of debenture liability is being divided by the total number of years. This must be noted that the authentic debentures reclaimable are recognised by the sources of drawing the required number of lots out of the debentures outstanding for the payment.
• Purchase in open market: When an enterprise buys its own debentures for the aim of cancellation, such an act of buying and cancelling the debentures comprises redemption of debentures by purchase in the open marketplace.
• Conversion into shares or new debentures: An enterprise can reclaim its debentures by transforming them into a new class of debentures or shares. If debenture holders find that the proffer is useful to them, they can exercise their right of transforming their debentures into new class of debentures or shares. These new shares or debentures can be either circulated at a premium, at a discount or at par. It may be noted that this method is applicable only to convertible debentures.