However, shares can be issued at discount in accordance with the provisions of Section 79 of The Companies Act, 1956 which stipulates that the rate of discount must not exceed 10% of the face value while debentures can be issued at any rate of discount.
What is discount on issue of debentures?
Discount on issue of debentures is a capital loss and over a period of 3 to 5 years or is charged to “Securities Premium Account” as per the guidelines issued by ICAI. The discount on issue of debentures can be written-off either by debiting it to profit and loss or to securities premium account.
What is the maximum limit of debentures?
05% per year of the face value of the debentures, subject to the maximum of 0.25% or Rs 25 lakh, whichever is lower. Eg: On debentures worth Rs. 20 Crores, stamp duty would be Rs. 1 lakh.
Can we issue debentures at discount?
Unlike shares, a company can issue debentures at a discount which is called “Debentures issued at Discount”. Giving debentures at a discount increases the capital of the company with respect to the less increase in the Cash for it.
Which shares are issued at discount?
When Shares are issued at a price lower than their face value, they are said to have been issued at a discount. For example, if a share of Rs 100 is issued at Rs 95, then Rs 5 (i.e. Rs 100—95) is the amount of discount. It is a loss to the company.
What is the maximum rate of discount?
The issue at a discount is authorized by a resolution passed by the company in the general meeting & sanctioned by the company law board. The maximum rate of discount must not exceed 10% or such rate as the company law board may permit.
What is the treatment of discount while issuing debentures?
Some of the methods used for the treatment of discount on issue of debentures are as follows: Discount on issue of debentures is a loss of capital nature. It will appear on the asset side of balance sheet till it is written off. It is desirable that it is written off as quickly as possible.
What is the treatment of discount on issue of debentures in cash flow statement?
The increase in discount should be deducted from the face value of shares / Debentures and only net proceeds shall be treated as cash flow from Financing Activities. Decrease in Discount on issue of Shares/Debentures will be added back to current year’s profit to calculate ‘Cash from Operating Activities’.
Why do debenture holders not have any voting rights?
Debentures are primary in order to pay interest expenses by a fixed rate. … In a company’s general meetings of shareholders, debenture holders have no voting rights as they may have separate meetings or votes. Debentures reduce the burden of income tax, as the interest is charged against profit and loss account.
Are debentures long term debt?
A debenture is a long-term debt instrument issued by corporations and governments to secure fresh funds or capital. Coupons or interest rates are offered as compensation to the lender., etc.
Can debentures be issued without interest?
Zero Rates of Interest Debentures: Company can issue this type of debenture, Rate of interest in these debentures will be zero. Debenture Redemption Reserve: As stated in section 71(4) the company shall create a debenture redemption reserve account out of the profits of the company available for payment of dividend.
How do you cash debentures?
Here the debentures will be issued exactly at their nominal price, i.e. not above or below the face value of the debentures. Now the company can decide to collect the cash all at once, in a lump sum. Or the money will be collected in installments, like with allotment, first call, second call, last call etc.