Buying back and converting debentures

A company may buy its own debentures in the market, often when their price is low, and cancel them.

• Bought below face value: Debentures Dr. (face value) To Bank (price paid), To Profit on Redemption. That profit is a capital profit, moved to Capital Reserve.
• Bought above face value: the extra is a Loss on Redemption, written off to the statement of profit and loss.

It may also keep them for a while as an investment, as Own Debentures, and cancel them later: Debentures Dr. To Own Debentures, with any profit to capital reserve.

Conversion into shares: number of shares = amount due ÷ issue price of the new share. Entry: Debentureholders Dr. To Share Capital (and To Securities Premium, if the shares are issued at a premium).

Example: debentures of 50,000 face value are bought at ₹95 and cancelled. Paid 500 × 95 = 47,500, so profit 2,500: Debentures Dr. 50,000 To Bank 47,500, To Profit on Redemption 2,500; then to capital reserve.

Example of conversion: 60,000 due is converted into ₹10 shares issued at ₹15. 60,000 ÷ 15 = 4,000 shares: capital 40,000 and premium 20,000.