Debenture

jewels.pjewels.p Font Of All KnowledgePosts: 1,774Registered
Can anyone explain exactly what this is. I have googled it but cant find an easy explanation of this.

Thanks:001_smile:

Comments

  • columbiacolumbia Experienced Mentor Posts: 580Registered
    OK,

    This is taken from my book-keeping notes, hope it is okay to retype them on here!

    Debentures - Also known as Loan Stock or Loan Capital

    A debenture is a loan made to the business and will be repaid at a future date. It is different from an ordinary share which will normally never be repaid.

    Interest is paid at the rate quoted and must be paid whether the company makes a profit or not. They are classed as business expenses (ie P&L) and again differ from dividends paid on shares which are paid out of profits (after net profit has been calculated) and might not be paid at all.

    Debentures are issued as;

    Redeemable Debentures;

    A company can borrow money by issuing debentures at a published rate of interest and stating the period for which they wish to borrow the money. Usually 2 dates are quoted eg 2009-2015 which shows the date of issue and the date of repayment.

    Irredeemable Debentures;

    No future date when the loan is redeemed is anticipated although they would be due for repayment in the event that the company went into liquidation.

    Secured Debentures;

    These may be issued on the basis that the lenders have a legal right that, subject to certain situations they can take control of certain assets and sell them to recover their loan. These may also be known as mortgage debentures.

    Unsecured Debentures;

    These have no charge over the assets of the company. They are also know as simple debentures.
  • jewels.pjewels.p Font Of All Knowledge Posts: 1,774Registered
    columbia wrote: »
    OK,

    This is taken from my book-keeping notes, hope it is okay to retype them on here!

    Debentures - Also known as Loan Stock or Loan Capital

    A debenture is a loan made to the business and will be repaid at a future date. It is different from an ordinary share which will normally never be repaid.

    Interest is paid at the rate quoted and must be paid whether the company makes a profit or not. They are classed as business expenses (ie P&L) and again differ from dividends paid on shares which are paid out of profits (after net profit has been calculated) and might not be paid at all.

    Debentures are issued as;

    Redeemable Debentures;

    A company can borrow money by issuing debentures at a published rate of interest and stating the period for which they wish to borrow the money. Usually 2 dates are quoted eg 2009-2015 which shows the date of issue and the date of repayment.

    Irredeemable Debentures;

    No future date when the loan is redeemed is anticipated although they would be due for repayment in the event that the company went into liquidation.

    Secured Debentures;

    These may be issued on the basis that the lenders have a legal right that, subject to certain situations they can take control of certain assets and sell them to recover their loan. These may also be known as mortgage debentures.

    Unsecured Debentures;

    These have no charge over the assets of the company. They are also know as simple debentures.

    Thanks for that. So can the loan be from an outside party or is it a Loan from an Owner or Partner of the business?
  • columbiacolumbia Experienced Mentor Posts: 580Registered
    Hey I quoted verbatim, you don't expect me to understand it do you???!!!!!

    Seriously though, I think the loan can be from anybody, although I am sure someone will correct me if I am wrong!
  • Bookworm55Bookworm55 Trusted Regular Posts: 479Registered
    How much detail do you want?

    A debenture is a long-term loan. (ie non-current liability)

    More specifically, a debenture is a document which creates or acknowledges a debt. It is a loan secured upon the assets of the company (rather than the assets of the shareholders or not being secured at all).

    eep... the last three posts above arrived while I was deciding how much to write!
  • columbiacolumbia Experienced Mentor Posts: 580Registered
    Sorry Bookworm, I worried someone might also post whilst I was typing!!!
  • jewels.pjewels.p Font Of All Knowledge Posts: 1,774Registered
    columbia wrote: »
    Hey I quoted verbatim, you don't expect me to understand it do you???!!!!!

    Seriously though, I think the loan can be from anybody, although I am sure someone will correct me if I am wrong!

    :laugh: Thanks for your help. I am doing Unit 15 and am attempting a Cash Budget with "8% Debentures" and wasnt sure what it was. It wouldave been easier if they'd just put "Loan":laugh:
  • jewels.pjewels.p Font Of All Knowledge Posts: 1,774Registered
    Bookworm55 wrote: »
    How much detail do you want?

    A debenture is a long-term loan. (ie non-current liability)

    More specifically, a debenture is a document which creates or acknowledges a debt. It is a loan secured upon the assets of the company (rather than the assets of the shareholders or not being secured at all).

    eep... the last three posts above arrived while I was deciding how much to write!

    Thanks:001_smile:
  • jewels.pjewels.p Font Of All Knowledge Posts: 1,774Registered
    So all in all is it just another word for a Long Term Loan?
  • columbiacolumbia Experienced Mentor Posts: 580Registered
    Yeah!
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