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Issue of Debentures
Dr.G.KARTHIKEYAN
Assistant Professor
PG & Research Department of Commerce
(Former Controller of Examinations)
A.V.C.College (Autonomous)
Mannampandal – 609 305
Mayiladuthurai District.
Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
ISSUE OF DEBENTURES
Debentures
Meaning: Debentures are “Creditorship Securities” issued by a company, usually for a
fixed period, at a specified rate of interest payable periodically. The company’s assets
may be given as security for the debentures but such security is not mandatory.
Joint Stock
Company
Raise Funds
Long Term
Financial Needs
Issue of Shares
Medium Term
Financial Needs
Issue of
Debentures
Sec.292(1) of the Indian Companies Act deals with borrowing powers of a company which include the
power to issue debentures.
Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
Accounting for
Debentures
Issue of Debentures
Consideration for
Issue of Debentures
Terms relating to issue
price and condition of
redemption of
Debentures
Redemption of
Debentures
Redemption without
provision
Redemption out of
provision
Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
Issue of
Debentures
Consideration for
Issue of Debentures
Issue of debentures
for Cash
Issue of debentures
for consideration
other than cash
Issue of debentures as
Collateral Security
Terms relating to issue
price and condition of
redemption of
Debentures
Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
Issue of
Debentures
Consideration for Issue
of Debentures
Terms relating to issue
price and condition of
redemption of
Debentures
1. When the issue is at par, repayable at par
2. When the issue is at discount, repayable at par
3. When the issue is at premium, repayable at par
4. When the issue is at par, repayable at Premium
5. When the issue is at discount and repayable at premium
6. When the issue is at premium and repayable at premium
Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
ISSUE OF DEBENTURES
I.Consideration for Issue of Debentures:
1. For Cash
2. For Assets
3. As Collateral Security for loans
1. Issue of debentures for Cash:
Model Journal Entries Rs. Rs.
(i) If Full amount is received in one lump sum
Bank A/c Dr.
To Debenture A/c
xxx
xxx
(ii) If cash is receivable in two or more stages
Model Journal Entries Rs. Rs.
1. For receiving debenture application money
Bank A/c Dr.
To Debenture Application A/c
xxx
xxx
2. At the time of allotment, for the application money on the allotted debentures
Debenture Application A/c Dr.
To Debentures A/c
xxx
xxx
3. For excess debenture application money
Debenture Application A/c Dr.
To Bank A/c (if money returned)
To Debenture allotment A/c (if money adjusted towards allotment)
xxx
xxx
xxx
4. For debenture allotment amount receivable
Debenture Allotment A/c Dr.
To Debentures A/c
xxx
xxx
5. For receiving debenture allotment money
Bank A/c Dr.
To Debenture Allotment A/c
xxx
xxx
6. For debenture call amount receivable
Debenture Call A/c Dr.
To Debentures A/c
xxx
xxx
7. For receiving debenture call money
Bank A/c Dr.
To Debenture Call A/c
xxx
xxx
 The issue price is receivable in the form of
cash.
 It may be received immediately in one
lump sum or it may be received in two or
more stages.
Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
ISSUE OF DEBENTURES
2. Issue of debentures for consideration other than Cash:
Debentures may be issued for purchase of assets or purchase of business of vendors.
(a) When Purchase of Assets
Model Journal Entries Rs. Rs.
1. When assets are acquired
Sundry Assets A/c Dr.
To Vendor A/c
xxx
xxx
2. When debentures are issued to the vendors
Vendor A/c Dr.
To Debentures A/c
xxx
xxx
(a) When purchase of business
Model Journal Entries
1. When assets and liabilities are acquired
Sundry Assets A/c Dr.
Goodwill A/c Dr.
To Sundry Liabilities A/c
To Vendor A/c
xxx
xxx
xxx
xxx
2. When debentures are issued to the vendors
Vendor A/c Dr.
To Debentures A/c
xxx
xxx
Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
ISSUE OF DEBENTURES
3. Issue of debentures as Collateral Security:
 Debentures may be issued as collateral security in addition to the main security for a bank loan.
 When the principal amount or interest amount or both are not paid in due time, the bank can
recover its loan and interest not only from the main security, but also from the Sale of the
debentures issued as collateral security.
Note: Debentures issued as collateral security can be treated in either of the following ways in the
accounting books of the company:
1. First Method
2. Second Method
Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
ISSUE OF DEBENTURES
3. Issue of debentures as Collateral Security:
1. First Method
• In this method issue of the debentures is
not at all recorded in the journal or ledger.
• The debentures will become a real liability
only when the loan is not repaid as per the
agreed terms. However, the following
notations are made in the liabilities side of
the Balance Sheet.
Balance Sheet
Rs.
I. Equity and Liabilities:
Non-Current Liabilities:
Long-term Borrowings:
Debentures
(In addition ____ debentures of Rs.
each have been issued as collateral security)
Bank Loan
(Secured by ___ debentures of Rs___ each as
collateral security)
xxx
xxx
II. Assets
2. Second Method
• In this method issue of the debentures is recorded in the
journal /ledger and Balance sheet.
Model Journal Entries Rs. Rs.
1. At the time of issuing the debentures as collateral security
Debenture Suspense A/c Dr.
To Debentures A/c
xxx
xxx
2. When the loan is repaid and the debentures are returned by the lender
Debentures A/c Dr.
To Debenture Suspense A/c
xxx
xxx
Balance Sheet
Rs.
I. Equity and Liabilities:
Non-Current Liabilities:
Long-term Borrowings:
Debentures
Bank Loan
xxx
xxx
II. Assets
Debenture Suspense A/c
(Debentures issued as collateral security for loan
as per contra)
xxx
Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
ISSUE OF DEBENTURES
II. Terms relating to issue price and
condition of redemption of Debentures
Model Journal Entries Rs. Rs.
1. When the issue is at par, repayable at par
Bank A/c Dr.
To Debentures A/c
xxx
xxx
2. When the issue is at discount, repayable at par
Bank A/c Dr.
Discount on issue of Debentures A/c Dr.
To Debentures A/c
xxx
xxx
xxx
3. When the issue is at premium, repayable at par
Bank A/c Dr.
To Debentures A/c
To Securities Premium A/c
xxx
xxx
xxx
4. When the issue is at par, repayable at premium
Bank A/c Dr.
Loss on issue of Debentures A/c Dr.
To Debentures A/c
To Premium on redemption of Debentures A/c
xxx
xxx
xxx
xxx
5. When the issue is at discount and repayable at premium
Bank A/c Dr.
Discount on issue of Debentures A/c Dr.
Loss on issue of Debentures A/c Dr.
To Debentures A/c
To Premium on redemption of Debentures A/c
xxx
xxx
xxx
xxx
xxx
6. When the issue is at premium and repayable at premium
Bank A/c Dr.
Loss on issue of Debentures A/c Dr.
To Debentures A/c
To Securities Premium A/c
To Premium on redemption of Debentures A/c
xxx
xxx
xxx
xxx
xxx
 The issue may be made at ‘par’ or
at ‘discount’ or at ‘premium’.
 The redemption may be made at
‘par’ or at ‘discount’ or at
‘premium’.
Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
Thank You
Dr.G.KARTHIKEYAN - drgkavcc@gmail.com

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Guide Debentures Issued Companies

  • 1. Issue of Debentures Dr.G.KARTHIKEYAN Assistant Professor PG & Research Department of Commerce (Former Controller of Examinations) A.V.C.College (Autonomous) Mannampandal – 609 305 Mayiladuthurai District. Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
  • 2. ISSUE OF DEBENTURES Debentures Meaning: Debentures are “Creditorship Securities” issued by a company, usually for a fixed period, at a specified rate of interest payable periodically. The company’s assets may be given as security for the debentures but such security is not mandatory. Joint Stock Company Raise Funds Long Term Financial Needs Issue of Shares Medium Term Financial Needs Issue of Debentures Sec.292(1) of the Indian Companies Act deals with borrowing powers of a company which include the power to issue debentures. Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
  • 3. Accounting for Debentures Issue of Debentures Consideration for Issue of Debentures Terms relating to issue price and condition of redemption of Debentures Redemption of Debentures Redemption without provision Redemption out of provision Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
  • 4. Issue of Debentures Consideration for Issue of Debentures Issue of debentures for Cash Issue of debentures for consideration other than cash Issue of debentures as Collateral Security Terms relating to issue price and condition of redemption of Debentures Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
  • 5. Issue of Debentures Consideration for Issue of Debentures Terms relating to issue price and condition of redemption of Debentures 1. When the issue is at par, repayable at par 2. When the issue is at discount, repayable at par 3. When the issue is at premium, repayable at par 4. When the issue is at par, repayable at Premium 5. When the issue is at discount and repayable at premium 6. When the issue is at premium and repayable at premium Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
  • 6. ISSUE OF DEBENTURES I.Consideration for Issue of Debentures: 1. For Cash 2. For Assets 3. As Collateral Security for loans 1. Issue of debentures for Cash: Model Journal Entries Rs. Rs. (i) If Full amount is received in one lump sum Bank A/c Dr. To Debenture A/c xxx xxx (ii) If cash is receivable in two or more stages Model Journal Entries Rs. Rs. 1. For receiving debenture application money Bank A/c Dr. To Debenture Application A/c xxx xxx 2. At the time of allotment, for the application money on the allotted debentures Debenture Application A/c Dr. To Debentures A/c xxx xxx 3. For excess debenture application money Debenture Application A/c Dr. To Bank A/c (if money returned) To Debenture allotment A/c (if money adjusted towards allotment) xxx xxx xxx 4. For debenture allotment amount receivable Debenture Allotment A/c Dr. To Debentures A/c xxx xxx 5. For receiving debenture allotment money Bank A/c Dr. To Debenture Allotment A/c xxx xxx 6. For debenture call amount receivable Debenture Call A/c Dr. To Debentures A/c xxx xxx 7. For receiving debenture call money Bank A/c Dr. To Debenture Call A/c xxx xxx  The issue price is receivable in the form of cash.  It may be received immediately in one lump sum or it may be received in two or more stages. Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
  • 7. ISSUE OF DEBENTURES 2. Issue of debentures for consideration other than Cash: Debentures may be issued for purchase of assets or purchase of business of vendors. (a) When Purchase of Assets Model Journal Entries Rs. Rs. 1. When assets are acquired Sundry Assets A/c Dr. To Vendor A/c xxx xxx 2. When debentures are issued to the vendors Vendor A/c Dr. To Debentures A/c xxx xxx (a) When purchase of business Model Journal Entries 1. When assets and liabilities are acquired Sundry Assets A/c Dr. Goodwill A/c Dr. To Sundry Liabilities A/c To Vendor A/c xxx xxx xxx xxx 2. When debentures are issued to the vendors Vendor A/c Dr. To Debentures A/c xxx xxx Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
  • 8. ISSUE OF DEBENTURES 3. Issue of debentures as Collateral Security:  Debentures may be issued as collateral security in addition to the main security for a bank loan.  When the principal amount or interest amount or both are not paid in due time, the bank can recover its loan and interest not only from the main security, but also from the Sale of the debentures issued as collateral security. Note: Debentures issued as collateral security can be treated in either of the following ways in the accounting books of the company: 1. First Method 2. Second Method Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
  • 9. ISSUE OF DEBENTURES 3. Issue of debentures as Collateral Security: 1. First Method • In this method issue of the debentures is not at all recorded in the journal or ledger. • The debentures will become a real liability only when the loan is not repaid as per the agreed terms. However, the following notations are made in the liabilities side of the Balance Sheet. Balance Sheet Rs. I. Equity and Liabilities: Non-Current Liabilities: Long-term Borrowings: Debentures (In addition ____ debentures of Rs. each have been issued as collateral security) Bank Loan (Secured by ___ debentures of Rs___ each as collateral security) xxx xxx II. Assets 2. Second Method • In this method issue of the debentures is recorded in the journal /ledger and Balance sheet. Model Journal Entries Rs. Rs. 1. At the time of issuing the debentures as collateral security Debenture Suspense A/c Dr. To Debentures A/c xxx xxx 2. When the loan is repaid and the debentures are returned by the lender Debentures A/c Dr. To Debenture Suspense A/c xxx xxx Balance Sheet Rs. I. Equity and Liabilities: Non-Current Liabilities: Long-term Borrowings: Debentures Bank Loan xxx xxx II. Assets Debenture Suspense A/c (Debentures issued as collateral security for loan as per contra) xxx Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
  • 10. ISSUE OF DEBENTURES II. Terms relating to issue price and condition of redemption of Debentures Model Journal Entries Rs. Rs. 1. When the issue is at par, repayable at par Bank A/c Dr. To Debentures A/c xxx xxx 2. When the issue is at discount, repayable at par Bank A/c Dr. Discount on issue of Debentures A/c Dr. To Debentures A/c xxx xxx xxx 3. When the issue is at premium, repayable at par Bank A/c Dr. To Debentures A/c To Securities Premium A/c xxx xxx xxx 4. When the issue is at par, repayable at premium Bank A/c Dr. Loss on issue of Debentures A/c Dr. To Debentures A/c To Premium on redemption of Debentures A/c xxx xxx xxx xxx 5. When the issue is at discount and repayable at premium Bank A/c Dr. Discount on issue of Debentures A/c Dr. Loss on issue of Debentures A/c Dr. To Debentures A/c To Premium on redemption of Debentures A/c xxx xxx xxx xxx xxx 6. When the issue is at premium and repayable at premium Bank A/c Dr. Loss on issue of Debentures A/c Dr. To Debentures A/c To Securities Premium A/c To Premium on redemption of Debentures A/c xxx xxx xxx xxx xxx  The issue may be made at ‘par’ or at ‘discount’ or at ‘premium’.  The redemption may be made at ‘par’ or at ‘discount’ or at ‘premium’. Dr.G.KARTHIKEYAN - drgkavcc@gmail.com
  • 11. Thank You Dr.G.KARTHIKEYAN - drgkavcc@gmail.com