— Kishore V, SME and ACW at Edumarz
The redemption of debentures by conversion occurs when a debenture holder can change his or her debentures into shares or fresh debentures after a set length of time has passed. There is no need to have a Debenture Redemption Reserve because the corporation will not have to pay any money for the redemption (DRR). The additional shares or debentures might be issued at face value, at a premium, or at a discount.
If a holder of a debenture elects to convert, the issue price of shares must be equal to or less than the amount received from the debentures.
Treatment in Accounting
- For the amount due to debenture holders
Debenture A/c | Dr | |
To Debenture holders A/c | ||
(Debentures redeemed) | ||
- For discharging liability to the debenture holders
Debenture holders A/c | Dr | |
To Shares/Debentures (New) A/c | ||
(Debenture holder amount discharged) | ||