As per Companies Act if articles of association allows, Company can purchase the own debentures from the open market from recognized stock exchange. This procedure is usually adopted by the company only when debentures are quoted at a less price or at a discount on the stock exchange as compare to face value of debentures or amount of redemption of debentures.
After purchasing the debentures from the open market the company may use either of the following two options :
1. Company may immediately cancel the debenture purchased, after passing the resolution by Board of Directors.[A] When debentures are purchased at less price as compared to face value of the debentures :
[B] When debentures are purchased at more price as compared to face value of the debenture :
Company may not cancel the debentures but may keep with them. Company can issue them in future. Debentures purchased in this way are treated as ‘Investment in own debentures’.
When the company purchases own debentures from the open market and those debentures are kept as investment:
Journal Entry
Here investment in own debentures will be shown as non-current assets on t assets side at purchase price in the balance sheet.
When investment in own debenture used for debentures cancellation :
| Debenture A/c
Dr. |
|
……….. |
|
| Loss redemption of debenture A/c (if any)
Dr.
To Investment in own debenture A/c
To Profit on redemption of debenture A/c
(Being company has used the investment in the own debentures for the cancellation of issued debentures) |
|
……….
|
…………
………… |
