NCERT Class 12 Accountancy Accountancy Part-II: Chapter 2 — Issue and Redemption of Debentures
This chapter, 'Issue and Redemption of Debentures,' from NCERT Class 12 Accountancy Part-II, delves into the accounting treatment for raising long-term funds through debentures. It begins by defining debentures as a written instrument acknowledging debt, distinguishing them from shares based on ownership, return (interest vs. dividend), repayment, voting rights, security, and convertibility. The chapter outlines various types of debentures, including secured and unsecured, based on security. It further details the accounting entries for issuing debentures at par, discount, and premium, and covers debentures issued for consideration other than cash and as collateral security. The text also explains how to present debenture-related items in a company's balance sheet, methods for writing off discount or loss on issue, and various redemption methods, including the use of a sinking fund.
Quick info
| Board | CBSE / NCERT |
|---|---|
| Class | Class 12 |
| Subject | Accountancy |
| Book | Accountancy Part-II |
| Chapter | Chapter 2 — Issue and Redemption of Debentures |
| Language | English |
| PDF type | NCERT Textbook |
| Session | CBSE 2026 |
| Reading time | 4 minutes |
| Word count | 705 |
Learning outcomes
- State the meaning of debenture and differentiate it from shares.
- Describe various types of debentures.
- Record journal entries for issuing debentures under different terms.
- Explain and account for debentures issued for consideration other than cash and as collateral security.
- Show debenture-related items in the company's balance sheet.
- Describe methods of writing off discount/loss on debenture issue and redemption.
Vocabulary
| Word | Meaning |
|---|---|
| Debenture | A written instrument acknowledging a debt, issued by a company, with a contract for repayment of principal and interest. |
| Bond | An instrument of acknowledgement of debt, often issued by governments and organizations. |
| Dividend | The return on shares, varying with profits and an appropriation of profits. |
| Interest | The fixed rate return on debentures, considered a charge on profits. |
| Secured Debentures | Debentures backed by a charge on the company's assets. |
| Unsecured Debentures | Debentures not backed by any specific charge on assets. |
| Convertible Debentures | Debentures that can be converted into shares under specified terms. |
| Collateral Security | An additional security provided for a loan or debenture issue. |
| Sinking Fund | A fund created by setting aside money regularly for the redemption of debentures or other long-term liabilities. |
| Fixed Charge | A charge created on a specific asset of the company. |
| Floating Charge | A charge created over a class of assets, present or future, which changes in the ordinary course of business. |
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Practice questions
- What is the primary difference between shares and debentures regarding ownership? Answer: Shares represent ownership in the company, while debentures acknowledge a debt owed by the company.
- How is the return on debentures different from the return on shares? Answer: Debentures earn a fixed rate of interest, which is a charge on profits, while shares earn dividends, which depend on profits and are an appropriation of profits.
- What is meant by secured debentures? Answer: Secured debentures are those for which a charge is created on the company's assets to ensure repayment.
- Can debentures be converted into shares? Answer: Yes, debentures can be converted into shares if the terms of issue provide for it; these are called convertible debentures.
Practice MCQs
Q1. Which of the following is NOT a characteristic of debentures compared to shares?
Explanation: Shares represent ownership of the company, whereas debentures represent a debt owed by the company.
Q2. The return on debentures is known as:
Explanation: The payment made to debentureholders is called interest, which is usually at a fixed rate.
Q3. According to The Companies Act, 2013, 'Debenture' includes:
Explanation: Section 2(30) of The Companies Act, 2013, defines debenture to include debenture stock, bonds, and any other securities of a company.
Q4. Which type of debenture is backed by a charge on specific assets?
Explanation: Fixed charge debentures are secured by a charge created on a specific asset of the company.
Q5. Payment of interest on debentures is considered a:
Explanation: Interest on debentures is a charge on profits, meaning it must be paid regardless of whether the company makes a profit or loss.
Frequently asked questions
What is a debenture?
A debenture is a written instrument acknowledging a debt, issued by a company, which typically includes terms for repayment of the principal amount and payment of interest at a fixed rate.
What is the difference between shares and debentures?
Shares represent ownership and have variable returns (dividends), while debentures represent debt and have fixed returns (interest), with no ownership rights for debentureholders.
Are debentures always secured?
No, debentures can be secured (backed by company assets) or unsecured (not backed by specific assets).
What does it mean to issue debentures at a premium?
Issuing debentures at a premium means the company receives an amount greater than the face value of the debenture.
What is the purpose of a sinking fund?
A sinking fund is a method used by companies to accumulate funds over time to meet future obligations, such as the redemption of debentures.
Can debentures be converted into shares?
Yes, if the terms of issue allow, debentures can be converted into shares, in which case they are called convertible debentures.
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NCERT Class 12 Accountancy — Accountancy Part-II — Chapter 2 — Issue and Redemption of Debentures. Verified by NCERT Help Editorial Team. Reviewed on 29 Jul 2026. Last updated 10 Aug 2026.