Issue of Debentures
Debentures
Debenture is a document given by a company as evidence of a debt to the holder usually arising out of a loan and most commonly secured by a charge.
Debenture Certificate
Features
of Debentures
A certificate which acknowledges debt of a company
Mode and period of repayment is fixed
Considered as external equity
Rate of interest on debenture is specified
Types of Debentures
Security
Redemption
Records
Coupon Rate
Convertibility
Secured
Unsecured
Redeemable
Irredeemable
Registered
Bearer
Specific Coupon Rate
Zero Coupon
Rate
Convertible
Non Convertible
Issue of Debentures for consideration other than cash
Debentures
Issue of Debentures for consideration other than cash
When the assets are purchased and debentures are issued
When a business is purchased and debenture are issued
1
2
Date | Particulars | | ` | ` |
| Sundry Assets A/c …Dr. To Vendors (Being the purchase of sundry assets) | | | |
| Vendors A/c …Dr. To Debenture A/c (Being the issue of debenture at par) | | | |
| Vendors A/c …Dr. To Debenture A/c To Securities Premium (Being the issue of debenture at premium) | | | |
Any of the two entries will appear as per the case may be
When the assets are purchased and debentures are issued
Issue of Debentures for consideration other than cash
1
Issue of Debentures for consideration other than cash
When a business is purchased and debenture are issued
2
Purchase consideration is equal to net value of the assets
Purchase consideration is more than net value of the assets
Purchase consideration is less than net value of the assets
Purchase consideration is equal to net value of the assets
When a business is purchased and debenture are issued
Date | Particulars | | ` | ` |
| Sundry Assets A/c …Dr. To Vendors To Sundry Liabilities A/c (Being sundry assets acquired and liabilities taken over a purchase consideration) | | With the value of asset With the purchase consideration With the value of liability | |
Journal Entries
Purchase consideration is more than the net value of the assets
When a business is purchased and debenture are issued
Date | Particulars | | ` | ` |
| Sundry Assets A/c …Dr. Goodwill A/c …Dr. To Vendors To Sundry Liabilities A/c (Being the taking over of assets and liabilities and payment of purchase consideration) | | With the value of asset With the excess purchase consideration With the purchase consideration With the value of liabilities | |
Journal Entries
Purchase consideration is less than the net value of the assets
When a business is purchased and debenture are issued
Date | Particulars | | ` | ` |
| Sundry Assets A/c …Dr. To Capital Reserve To Vendors To Sundry Liabilities A/c (Being the taking over of assets and liabilities and payment of purchase consideration) | | With the value of asset With the excess purchase consideration With the purchase consideration With the value of liabilities | |
Journal Entries
Issue of Debentures as Collateral Security
Debentures as Collateral Security
Debentures
`
Debenture Suspense A/c …Dr. To Debenture A/c (Being the issue of debenture as collateral security issued) |
Balance Sheet Liabilities Secured Loans Bank Loan (Secured by issue of ` 5,000, 10% debentures as collateral security) |
Issue of debenture as collateral security recorded
No entry is recorded at the time of issuing such debentures.
Issue of Debentures as Collateral Security
Method - 1
Method - 2
Illustration
Issue of Debentures as Collateral Security
Illustration
ABC Ltd. secured a loan of ` 80,000 from Punjab National Bank issuing 1,000, 10% Debentures of 100 each as collateral security. Show the treatment for the issue of debentures. |
Method - 1
Method - 2
Issue of Debentures as Collateral Security
Balance Sheet of ABC Ltd
Particulars | ` | Particulars | ` |
Secured Loans Loan from PNB (Secured by issue of ` 1,000, 10% Debentures of 100 each as collateral security) | 80,000 | | |
| | | |
Method - 1
Issue of Debentures as Collateral Security
Method - 2
Balance Sheet of ABC Ltd
Particulars | ` | Particulars | ` |
Secured Loans 1,000, 9% Debenture Loan from PNB (Secured by issue of ` 1,000, 10% Debentures of 100 each as collateral security) | 1,00,000 80,000 | Miscellaneous Expenditure Debenture Suspense A/c | 1,00,000 |
| | | |
Particulars | | ` | ` |
Debenture Suspense A/c …Dr. To 10% Debenture A/c (Being the issue of 1,000, 10% Debenture of 100 each as collateral security for a loan from bank.) | | 1,00,000 - | - 1,00,000 |
| | | |
Journal