class 12 accountancy issue of debenture and financial analysis notes

Issue of Debenture and financial analysis .... Short & Easy Notes for Board Exam

#1. What do you mean by debenture? what are its characteristics?

=> Debenture is a document issued by the company to obtain loan from the public or private institutions.

Following are its characteristics;

1. It is a return instrument.

2. It is a loan document issued by the company.

3. It has a fixed rate of return.

4. It may be secured or unsecured.

5. It does not carry voting right.

#2. Difference between share and debenture.

=> Share;

1. It represent a portion of capital.

2. It has voting right.

3. Dividend is paid on share.

4. Dividend is made only when there is profit.

5. Shareholder are the owner of the company.

6. It cannot be redeemed.

Debenture;

1. It represent debt of the company.

2. It does not have voting right.

3. Interest is paid on debenture.

4. Interest is compulsory, weather the company earn profit or not.

5. Debenture-holder are the creditor of the company.

6. It can be redeemed.

#3. What are the kinds of debenture?

=> There are various kinds of debenture;

1. Registered debenture :- Debenture which are recorded in the register of debenture-holder are called registered debenture.

2. Bearer debenture :- This type of debenture are Transferable by delivery.

3. Mortgage Debenture :- It has fixed charge on the assets of the company. Those debenture are secured against assets of the company.

4. Unsecured debenture :- The company does not offer anything by way of security.

5. Redeemable debenture :- Which are repayable you by the company within a specific period.

6. Irredeemable debenture :- Those debenture which are not payable during the life of the company.

7. Convertible debenture :- Which can be converted into share with in a period.

8. Non convertible debenture :- Which have no right to convert them into share.

#4. What do you mean by zero coupon?

=> Those debenture which does not carry a specific rate of interest.

#5. What do you mean by redemption of debenture. What are its source of redemption?

=> Redemption of debenture means discharge of liabilities on accounts of debenture. After a certain Period of the company pay the amount of loan-holder.

Following are the source of redemption of debenture;

1. Out of capital.

2. Out of profit.

3. By issue of share on you debenture.

4. Conversion of debentures into share or new debenture.

5. Out of sale proceed of fixed assets.

#6. Write the method used of redemption of debenture.

=> Following methods are used for redemption of debenture;

1. Lump-sum on maturity :- Under this method total amount of debenture is paid to debenture-holder in one installment.

2. By annual drawing :- Under this method redemption of debenture is made by drawing, loss or by annual installment.

3. Redemption by purchase :- When company its own debenture in the open market for the purpose of cancellation.

4. Redemption on payment by conversion :- Under this method debenture-holder are given the right to exercise the option to convert their debenture into share or new class of debenture.

#7. What do you mean by financial analysis? What are its objectives?

=> Financial analysis is a process of calculating relationship between company port of financial statement to obtain better understanding of firm position and performance.

Following are its objectives;

1. To know present and future earning capacity.

2. To know the short term solvency.

3. To compare inter-form position.

4. To know the financial stability.

5. To determine the value of business.

6. To determine the value of goodwill.

7. The judge efficiency of Management.

8. To take corrective action.

#8. What do you mean by horizontal and vertical analysis?

=> While horizontal looks changes in the dollar amount in a companies financial statement over time. Where as vertical alliances looks at each line items as a percentage of a base figure within the current period. Vertical analysis is also known as common size financial statement analysis.

#9. Difference between horizontal and vertical analysis.

=> Horizontal analysis;

1. It require comparative financial statement of two or more accounting period..

2. It deal with the same item of different period.

3. Trend analysis is the main tool of horizontal analysis.

4. It is useful for the long term planning.

5. It is important for financial analysis.

Vertical analysis;

1. It require statement of one period only.

2. It deals with the difference between item of some period.

3. Common size statement is the main tool of vertical analysis.

4. It is useful for the short term planning.

5. It is helpful in assessing the financial position.

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