...EX-INTEREST DEBENTURES INTRODUCTION DEBENTURES The total capital of joint stock companies can be divided into owner's capital and borrowed capital. Share capital is owner's capital whereas debenture is considered as borrowed capital. The buyers of shares i.e. shareholders possess the voting right through which they own control power of the company. Debenture is a long-term loan. Companies can raise additional capital by the issue of debentures. Debenture-holders receive fixed income in the form of interest during the loan period, however, they do not possess the voting right. Debenture is a written promise for a debt by a company under its seal which contains the terms and conditions regarding the amount of loan or principal, the rate of interest, maturity date, maturity value etc. In other words, debenture is a certification of acknowledgment issued with the seal of company in favor of lender as an evidence of debt. This written document grants the holder the right to receive interest and return of principal as per the terms under which debentures are issued. Thus, debenture is a part of total capital of a company and debenture-holders are the creditors. Debenture-holders are entitled the right to receive interest on their fund invested in debenture. The rate of interest is predetermined and stated in the bond certificate. The interest is payable whether there is profit or loss. Modes Of Issue Of Debentures [pic][pic]The...
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...WLC 35 CHAPTER 8 – BORROWINGS & CHARGES CHAPTER 8 BORROWING POWERS OF A COMPANY BORROWING POWERS • Every trading company has an implied power to borrow, as borrowing is implied in the object for which it is incorporated. A trading company can exercise this power even if it is not included in the Memorandum. However non-trading company has no implied power to borrow and such power can be taken by it implied power to borrow and such power can be taken by it by including a clause to that effect in the Memorandum. A public company can borrow only after the receipt of Commencement Certificate. [Section 149(1)]. But a private company can borrow immediately after the incorporation The Board of Directors may borrow moneys by passing a resolution passed at the meetings of the Board. The board may delegate its borrowing powers to a Committee of Directors. Such a resolution should specifically mention the aggregate amount upto which the moneys can be borrowed by the Committee, the Managing Director, Manager or any other principal officer of the company on such conditions as it may prescribe [Section 292 (1) (c)] The moneys borrowed together with the moneys already borrowed by the company (excluding loans obtained from banks i.e. working capital) shall not exceed the aggregate of the paid up capital and the free reserves. [Section 293(1)(d)] It may be noted that a company may borrow in excess of its paid up capital and free reserves if it is so consented and authorized by the shareholders...
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...Tutorial 10-Charges Q1. What are debentures? A1.PP7,8. • Defined in S. 4(1) CA– a debenture to include stock, bonds, notes and other securities, whether they constitute a charge on the assets of the co. or not, but beyond this the Act does not actually state what a debenture is. Levy v Abecorris Slate and Slabs Co. (1887) 37 Ch D 260 • It is a document which acknowledges a co’s indebtedness - s. 4(5) CA. • A debenture may therefore be an unsecured promise to pay, or a promise to pay secured by a mortgage or charge.( may be paid out of capital] • If the debenture is secured by charge on the co’s property, the debenture holder is a secured creditor. Q2.Elaborate on the title’ Fixed Charge’. A1.PP13 • Fixed charge: a. It is attached to a specific property; b. The property is identifiable – e.g. land, building; c. The co. cannot dispose of the property subject to the charge unless with the chargee’s/creditor’s consent. • It is a mortgage of one or more specific or ascertained and definite property of the co., such as a legal or equitable mortgages on a factory or a piece of land. Q3.List out the differences between debentures and shares. A2.PP9,10 DISTINCTION BETWEEN SHARES AND DEBENTURES • Share Holder(SH )is a member of the co. Debenture Holder (DH) is a creditor. • SH have right to attend and vote at general meeting – they have membership rights. Not creditors. • SH will rely on S. 33(1) CA to enforce his...
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...increase their market share. Their external financing needs will keep increasing over the next few years as the operating margins shrink in an attempt to acquire 20% market share by 1990. To accomplish this, MCI will need to infuse huge capitals into their business. As per the pro forma statements, MCI would need significant amounts of capital to finance their plans. The figures range from $890 million in 1984 to $2.76 billion in 1987. Looking back at history, MCI has been known for issuing stock and debentures/convertible debentures. To finance their forecasts, MCI will begin by selling $481 million in common stock in 1984 the same way it did in the past. The share price is currently $47 per share and MCI needs to capitalize on the high value while it can. From 1985 to 1989, MCI will sell convertible debentures. A Convertible debenture is a type of loan issued by a company that can be converted into stock by the holder and, under certain circumstances, the issuer of the bond. The debentures allow investors to turn them into stock while at the same time allow MCI to issue more debt. Thus, each year from 1985 to 1989, MCI can take on more debt while converting older ones. The additional cash will provide for MCI’s growth plans and allow them to compete in a dynamic market. Pro Forma Statements Pro Forma statements are helpful in estimating future inflows and outflows. In any growing company, pro forma statements are vital in constructing future plans for growth. For MCI, we made...
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...only out of free reserves (i.e. reserves not set apart for any specific purpose) built out of the genuine profits or share premium collected in cash only. Bonus shares cannot be issued out of the reserves created by revaluation of fixed assets. If the existing shares are partly paid up, the company cannot issue Bonus Shares. It will be appropriate to first make the shares fully paid up before issuing Bonus Shares. It should be ensured that the company has not defaulted in payment of interest or principal in respect of fixed deposits and interest on existing debentures or principal on redemption thereof and It should be ensured that the company has sufficient reason to believe that it has not defaulted in respect of the payment of statutory dues of the employees such as contribution to provident fund, gratuity, bonus etc. If the company has already issued either fully convertible debentures or partly convertible debentures than in that case the company is required to extend similar benefits to such holders of securities through reservation of shares in proportion to...
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...to a fixed periodic income (interest) but generally do not give him or her voting rights. See also stock. 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 holders will get interest on debentures and will be paid in all circumstances, whether there is profit or loss will not affect the payment of interest on debentures. Shareholder will get a portion of the profits called dividend which is dependent on the profits of the company. It can be declared by the directors of the company out of profits only. * Shares cannot be converted into debentures whereas debentures can be converted into shares. * Debentures will get priority is getting the money back as compared to shareholder in case of liquidation of a company. * There are no restriction on issue of debentures at a discount, whereas shares at discount can be issued only after observing certain legal formalities. * Convertible debentures which can be converted into shares at the option of debenture holder can...
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...Shriram City Union Finance Limited (SCUFL) Secured NCD Issue August 11, 2011 Shriram City Union Finance Limited, one of the largest small enterprise finance companies in India, has come up with its public issue of Secured Non Convertible Debentures (NCDs) aggregating upto Rs. 375 crore with an option to retain over-subscription upto Rs. 375 crore for issuance of additional NCDs aggregating to a total of upto Rs. 750 crore. The Issue is open from August 11, 2011 to August 27, 2011 (The Company has the option of closing the issue on an earlier date, once it receives the amount it has targeted). The company will be paying an interest ranging between 11.50% and 12.10% p.a. on these bonds. Given the current scenario of rising interest rates in Indian debt markets where rates are expected to be close to their peak levels, the issue provides an opportunity to lock in attractive returns for a period of 3-5 years. This issue offers better interest rates compared to other alternatives though with slightly lower credit rating. Further, given its unique business model, decent financial history, reasonable credit rating and safety (Secured NCDs are 100% secured by assets of the company), investors comfortable with primary market offerings can participate in this issue (low to medium risk, medium - long term investment). If convinced, the investor needs to apply at the earliest as allotment is to be made on first come first serve basis. Investors can also look at NCDs of companies already...
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...ANNAMALAI[pic]UNIVERSITY | | |DIRECTORATE OF DISTANCE EDUCATION | M.B.A. (marketing Management) FIRST YEAR ACADEMIC YEAR 2011 - 2012 ASSIGNMENT TOPICS THIS BOOKLET CONTAINS ASSIGNMENT TOPICS. STUDENTS ARE ASKED TO WRITE THE ASSIGNMENTS FOR EIGHT PAPERS AS PER INSTRUCTIONS. Last date for submission : 28-02-2012 Last date for submission : 15-03-2012 with late fee ` 300/- NOTE: 1. Assignments sent after 15-03-2012 will not be evaluated. 2. Assignments should be in the own hand writing of the student concerned and not type-written or printed or photocopied. 3. Assignments should be written on foolscap paper on one side only. 4. All assignments (with Enrolment number marked on the Top right hand corner on all pages) should be put in an envelop with superscription “MBA Assignments” and sent to The Director, Directorate of Distance Education, Annamalai University, Annamalainagar – 608 002 by Registered post. P.T.O. 5. No notice will be taken on assignments which are not properly filled in with Enrolment Number and the Title of the papers. 6. Students should send full set of assignments for all papers. Partial assignments will not be considered. ASSIGNMENT INSTRUCTIONS Write assignments on any TWO topics in each paper out of the FOUR. For each topic the answer should not exceed 15–pages. Each assignment carries 25 marks. (2 topics) ...
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...Kate Greenway Corporation, having recently issued a $20 million, 15-year bond issue, is committed to make annual sinking fund deposits of $620,000. The deposits are made on the last day of each year and yield a return of 10%. Will the fund at the end of 15 years be sufficient to retire the bonds? If not, what will the deficiency be? (Round answer to 2 decimal places, e.g. 100,250.20.) 620000*1.1^15-1/.1 = 19698938.65 -20000000 = $301061.35 will be the deficit. What would you pay for a $100,000 debenture bond that matures in 15 years and pays $10,000 a year in interest if you wanted to earn a yield of: (Round computations to 2 decimal places, e.g. 15,250.25 and use the rounded amounts to calculate the final answer. Round the final answer to 2 decimal places, e.g. 30,250.25. Hint: Use tables in text.) (a) 8% 10000/1-1.08^15/.08 + 100000/1.08^15 = 85594.79+31524.17 = $117118.96 (b) 10% 10000/1-1.1^15/.1 + 100000/1.1^15 = 76060.8+23939.2 = $100000 (c) 12% 10000/1-1.12^15/.12 + 100000/1.12^15 = 68108.64+18269.63 = $86378.27 Stephen Bosworth, a super salesman contemplating retirement on his fifty-fifth birthday, decides to create a fund on an 8% basis that will enable him to withdraw $25,000 per year on June 30, beginning in 2014 and continuing through 2017. To develop this fund, Stephen intends to make equal contributions on June 30 of each of the years 2010-2013. (Round all answers to 2 decimal places, e.g. 10,250.25. Hint: Use tables in text.) (a) How much must the...
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...QUESTION 2 (a) What are the effect of pre incorporation contrast according to common law and the Malaysian Companies Act 1950? Explain the cases relevant to the aforesaid matter. Introduction Often promoters of companies try to enter into contracts on behalf of proposed corporations in order to secure the contract before the time for incorporation or to confirm the contracts for the corporation before the expense of incorporation is incurred. Normally the promoter does not have any intention of being personally liable on the contracts. In some cases the promoter is aware that the corporation has not been incorporated but the person dealt with is not aware that the corporation has not been incorporated. In other cases neither the promoter nor the person the promoter deals with is aware that the corporation has not been incorporated. In some cases the corporation is never actually incorporated. In other cases the corporation in incorporated and purports to ratify contracts entered into on its behalf before it was incorporated. In some cases the corporation that is purporting to ratify the contract is insolvent. The third party may be left to bear a loss if the promoter is relieved of personal liability and the third party’s claim is solely against the insolvent corporation. The questions that typically arise are whether the promoter can be personally liable on the contract and whether the corporation can ratify the contract. Pre-Incorporation A pre incorporation contract...
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...Redemption of Debentures: A company may issue redeemable as well as irredeemable debentures. But debentures issued by companies are usually redeemable debentures. There are two important ways of redeeming the debentures according to the term of the issue. Redemption of Debentures on a Fixed Date: In this method, payment to debenture holder is made at the expiry of the stated period. A "Sinking Fund" is created by debiting the "Profit & Loss Appropriation Account". The amount so credited in the sinking fund account is invested in the gilt edged securities. These securities are sold at the date of redemption of debentures. The sinking fund or debenture fund account is then transferred to the General Reserve. Some companies take up sinking fund insurance policy to redeem the debentures. Redemption of Debentures on annual installments: In this method, payment is made year after year, after a certain portion of the total debentures by drawings. As such the revenue account is debited with the annual drawings and the Redemption Fund Account are credited. Sinking Fund: It is a kind of reserve by which a provision is made to reduce a liability, e.g. redemption of debentures or repayment of aloan. A sinking fund is a form of specific reserve set aside for the redemption of a long term debt. The main purpose of creating a sinking fund is to have a certain sum of money accumulated for a future date by setting aside a certain sum of money every year. It is a kind of specific reserve...
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...ACCOUNTING FOR ISSUE OF DEBENTURES Debentures Issued at par and redeemable at par (i) For receipt of debenture application money: Bank A/c To X % Debenture Application A/c Dr. (ii) For transfer of Application money to debentures a/c : X % Debenture Application A/c To X % Debenture A/c Dr. (iii) For debenture allotment money due : X % Debenture Allotment A/c To X % Debenture A/c Dr. (iv) For receipt of allotment money: Bank A/c To X % Debenture Allotment A/c Dr. (v) For debenture call money due: X % Debenture …… call A/c To X % Debentures A/c Dr. (vi) For receipt of debenture call money : Bank A/c Dr. To X % Debenture …… call A/c Debentures Issued at premium and Redeemable at par (a) When premium amount due with application money (i) For debenture application money received including premium : Bank A/c To X % Debenture Application A/c (ii) For debenture application money adjusted : Dr. X % Debenture Application A/c To X % Debentures A/c To Securities Premium A/c Dr. (b) When premium amount due with allotment/call money (i) For debenture allotment/call money due including premium : X % Debenture Allotment/call A/c...
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...SEBI guidelines pertaining to the Issue of Debentures are as follows:- * Issue of FCDs having a conversion period more than 36 months will not be permissible, unless conversion is made optional with “put” and “call” option. • Compulsory credit rating will be required if conversion is made for FCDs after 18 months. • Premium amount on conversion, the conversion period, in stages, if any, shall be pre-determined and stated in the prospectus. • The interest rate for above debentures will be freely determinable by the issuer. • Issue of debenture with maturity of 18 months or less are exempt from the requirement of appointing Debenture Trustees or creating a Debenture Redemption Reserve (DRR). • In other cases, the names of the debenture trustees must be stated in the prospectus and DRR will be created in accordance with guidelines laid down by SEBI. • The trust deed shall be executed within six months of the closure of the issue. • Any conversion in part or whole of the debenture will be optional at the hands of the debenture holder, if the conversion takes place at or after 18 months from the date of allotment, but before 36 months. • In case of NCDs/ PCDs credit rating is compulsory where maturity exceeds 18 months. • Premium amount at the time of conversion for the PCD, redemption amount, period of maturity, yield on redemption for the PCDs/NCDs shall be indicated in the prospectus. • The discount on the non-convertible portion of the PCD in case they...
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...It can also signal a commitment to increase output to rival firms. Disadvantages - Increases the company's risk level. Company is more sensitive to economic downturns, interest rate variability, and changes in market conditions. Has to be re-paid. There is less risk appetite in making investment decisions as a result. Loan covenants have to be met. Assets may be taken as collateral if the firm cannot pay. . Explain the difference between subordinate debentures and debentures. A subordinated debenture is a bond or debt obligation issued by a corporation that has junior priority status relative to other bondholders of the company in the event of a liquidation or dissolution. Since the claims of subordinated debentures are lower than those of other corporate creditors, they carry greater investment risk. Subordinated debentures are backed or secured only by the full faith and credit of the issuing corporation. A debenture is a document that either creates a debt or acknowledges it, and it is a debt without collateral. Debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a...
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...Difference between Shares and Debentures Shares are uniform parts of the share capital. Debentures are uniform part of the loan capital of a company. Rights, privileges and the liabilities accompanying these instruments are different from one another. The main differences are as follows: 1. Share holders are owners of the company whereas the debenture holders are creditors of the company. Therefore, while the shareholders have a multi-faceted interest in the welfare of the company. The debenture holders have a very limited interest in the company. i.e. limited to receiving interest on time. 2. A shareholder is entitled to receive dividend when there are profits. The rate of dividend varies from year to year depending upon the amount of profit. On the other hand, the debenture holders are entitled to interest at a fixed rate which the company must pay whether or not there are profits. 3. A shareholder enjoys the rights of proprietorship of a company whereas a debenture holder can enjoy the rights of a lender only. 4. A shareholder has a right of control over the working of the company by attending and voting in the general meeting. They are able to decisively influence the composition of Board of directors and other senior management positions. The debenture holders do not have any voting right, and they are unable to exercise any such influence. 5. A debenture holder gets a fixed rate of interest per annum payable on fixed dates whereas a shareholder...
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