View
220
Download
1
Category
Preview:
Citation preview
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
Debentures Issue of Debentures
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
Debentures Issue of Debentures
Security
Redemption
Records
Coupon Rate
Convertibility
Secured Unsecured
Redeemable
Irredeemable
Registered Bearer
Specific Coupon
Rate
Zero Coupon
Rate
Convertible
Non Convertible
Debentures Types of Debentures
Issue of Debentures for consideration other than cash
Debentures
Debentures Issue of Debentures
When the assets are purchased and debentures are issued
When a business is purchased and debenture are issued
1
2
Issue of Debentures for consideration other than cash
Debentures Issue of Debentures
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 issued1
Issue of Debentures for consideration other than cash
Debentures Issue of Debentures
When a business is purchased and debenture are issued2
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
Issue of Debentures for consideration other than cash
Debentures Issue of Debentures
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 assetWith the purchase considerationWith 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 assetWith the excess purchase considerationWith the purchase considerationWith the value of liabilities
Journal Entries
Debentures Issue of Debentures
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 assetWith the excess purchase considerationWith the purchase considerationWith the value of liabilities
Journal Entries
Debentures Issue of Debentures
Issue of Debentures as Collateral Security
Debentures as
Collateral Security
Debentures
`
Debentures Issue of Debentures
Debenture Suspense A/c …Dr. To Debenture A/c(Being the issue of debenture as collateral security issued)
Balance SheetLiabilitiesSecured LoansBank 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.
Method - 1
Method - 2
Illustration
Issue of Debentures as Collateral Security
Debentures Issue of Debentures
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
Debentures Issue of Debentures
Balance Sheet of ABC Ltd
Particulars ` Particulars `
Secured LoansLoan 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
Debentures Issue of Debentures
Method - 2
Balance Sheet of ABC LtdParticulars ` Particulars `Secured Loans1,000, 9% DebentureLoan from PNB(Secured by issue of ` 1,000, 10% Debentures of 100 each as collateral security)
1,00,000 80,000
Miscellaneous ExpenditureDebenture 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
Issue of Debentures as Collateral Security
Debentures Issue of Debentures
Redemption of Debentures means repayment of the amount of debentures to the debenture holders or discharge of the liability on account of the debenture.
Sources of Redemption of
Debentures
Raise Fresh
Capital
Utilise the profit
Sale of Assets
Surplus Funds
Debentures Redemption of Debentures
Methods of Redemptio
n of Debenture
sIn installment by
draw of lots
By Conversion
On Maturity in lump-sum
By purchase in open market
Debentures Issue of Debentures
On Maturity in lump-sum
Under this method all debenture are redeem at the end of a specified period i.e. on maturity at par or at a premium.
At Par At premium
Face value Market Price Face value Market Price
Debentures Methods of Redemption of Debentures
At Par
On Maturity in lump-sum
Debenture A/c …Dr. (with nominal account) To Debenture Holders A/c
On Redemption
On Debentures becoming due for payment
Debenture Holders A/c …Dr. (with nominal account) To Bank A/c
Debentures Methods of Redemption of Debentures
On Maturity in lump-sum
At Premium
Debenture A/c …Dr. (with nominal account)Premium on redemption of debenture …Dr. (with premium payable) To Debenture Holders A/c
On Redemption
On Debentures becoming due for payment
Debenture Holders A/c …Dr. (with the amount paid) To Bank A/c
Debentures Methods of Redemption of Debentures
By purchase in open market
Under this method debenture may be purchased by the company either for immediate cancellation or keeping them as investment and cancel at a later date.
For immediate cancellation
Keeping them as investment
Debentures Methods of Redemption of Debentures
For immediate cancellation
Own Debenture A/c …Dr. (Cost of own debentures) To Bank A/c
On cancellation of own debentures
On purchase of Debentures
Debenture A/c …Dr. (with nominal account) To Own Debenture A/c (with purchase price) To Profit on cancellation of own debentures (Excess of face value)
By purchase in open market
Profit transferred to Capital ReserveProfit on cancellation of own debentures…Dr. To Capital Reserve A/c
Debentures Methods of Redemption of Debentures
For investment purpose
Investment in Own Debenture A/c …Dr. To Bank A/c
On cancellation of own debentures
On purchase of Debentures
Debenture A/c …Dr. (with nominal account) To Investment in Own Debenture A/c ( with Cost) To Profit on cancellation of own debentures (with profit)
By purchase in open market
Profit transferred to Capital ReserveProfit on cancellation of own debentures…Dr. To Capital Reserve A/c
Debentures Methods of Redemption of Debentures
Debenture A/c …Dr. To Debenture holders A/c
Discharge obligation by issue of Shares & Debentures
Amount due to Debentures holders
Redemption by Conversion
Debenture A/c …Dr.Premium on Redemption A/c …Dr. To Debenture holders A/c
Par Premium
Debenture holders A/c …Dr. To Share/Debenture A/c
Par Premium
Discount
Debenture holders A/c …Dr. To Share/Debenture A/c To Securities Premium A/c
Debenture holders A/c …Dr.Discount on issue of share A/c …Dr. To Share/Debenture A/c
Debentures Methods of Redemption of Debentures
Recommended