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Answer -
The situation where a debenture holder is able to convert existing debentures into equity shares or new debentures after the expiry of the existing debentures time period is known as redemption of debentures by conversion. The issue price of shares must be equal to or less than the amount that is received from debentures, this should be kept in mind by debenture holder when exercising the conversion option.
Debentures that can be converted to equity shares after a specified time is called as Convertible Debenture. The time at which it can be converted to equity shares is mentioned when the debentures are issued. There are two types:
1. Partly convertible debentures: In this only a part of debenture is eligible to be converted into equity shares.
2. Fully convertible debentures: In this all of the debenture can convert to equity shares.
Following treatment is provided for the conversion: