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

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


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


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 issued1



When a business is purchased and debenture are issued2

Purchase consideration is

equal to net value of the assets


more than net value of the assets

Purchase consideration is less

than net value of the assets




equal to net value of the assets


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


more than the net value of the assets


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


Purchase consideration is less than the net value

of the assets


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


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 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



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



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



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



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



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


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



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



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


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)


Profit transferred to Capital ReserveProfit on cancellation of own debentures…Dr. To Capital Reserve A/c


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)


Profit transferred to Capital ReserveProfit on cancellation of own debentures…Dr. To Capital Reserve A/c


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


Documents

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