ISSUE OF DEBENTURES
Debenture is an instrument issued by the company acknowledging its debt. Issue of Debentures is made by the company under its seal. It is a contract for the repayment of the amount borrowed by the company from the debentureholder after certain period or at the option of company.
ACCORDING TO SECTION 2 (30) OF THE COMPANIES ACT, 2013
“Debenture includes debenture stock, bonds and any other securities of the company whether constituting a charge on the company’s assets or not.”
ACCORDING TO JUSTICE WHITY
“Debenture is a document which either creates a debt or acknowledges it.”
ISSUE OF DEBENTURES
The debentures are issued in three following ways:
- For cash
- For consideration other than cash
- As a collateral security
ISSUE OF DEBENTURES FOR CASH
ISSUE OF DEBENTURES AT PAR
1.On receipt of application money
Bank A/c Dr.
To Debentures Application A/c
2. On transfer of Application amount
Debenture Application A/c Dr.
To Debentures A/c
3. On making Allotment money due
Debentures Allotment A/c Dr.
To Debentures A/c
4. On receipt of Allotment money
Bank A/c Dr.
To Debentures Allotment Account
5. On making Calls
Debentures first/ second/ final call A/c Dr.
To Debentures A/c
6. On receipts of call money
Bank A/c Dr.
To Debentures first/ second/ final call A/c
ISSUE OF DEBENTURES AT PREMIUM
1. If premium is received on Application
On receipt of application money
Bank A/c Dr.
To Debentures Application A/c
On transfer of Application amount
Debenture Application A/c Dr.
To Debentures A/c
To securities premium A/c
2.If premium is received on Allotment
On making Allotment money due
Debentures Allotment A/c Dr.
To Debentures A/c
To securities premium A/c
On receipt of Allotment money
Bank A/c Dr.
To Debentures Allotment Account
ISSUE OF DEBENTURES AT DISCOUNT
On making Allotment money due
Debentures Allotment A/c Dr.
Discount on issue of debentures A/c Dr.
To Debentures A/c
On receipt of Allotment money
Bank A/c Dr.
To Debentures Allotment Account
ISSUE OF DEBENTURES FOR CONSIDERATION OTHER THAN CASH
It may happen that a company may acquire some new assets and make the payment by the issue of debentures. In that case, the journal entries will be as follows:
On purchase of Assets
Sundry Assets A/c Dr.
To Vendor A/c
On Allotment of debentures (at par)
Vendor’s Account Dr.
To Debentures A/c
On Allotment of debentures (at premium)
Vendor’s Account Dr.
To Debentures A/c
To securities premium A/c
On Allotment of debentures (at discount)
Vendor’s Account Dr.
Discount on issue of debentures A/c Dr.
To Debentures A/c
ISSUE OF DEBENTURES AS COLLATERAL SECURITY
A collateral security may be defined as the secondary security. It refers to the additional security in addition to the principal security.
When a company takes a loan or overdraft from a bank, it may deposit its own debentures with the lending agency as collateral security in addition to another security it may give. When the loan is paid back, the debentures issued as collateral security are returned to the company.
Debentures issued as collateral security may be treated in two ways in the books of the accounts.
FIRST METHOD: no accounting entry is made in the books of the accounts. The debentures issued as collateral security is mentioned as a note under the loan against which they are issued.
| LIABILITIES | AMOUNT | ASSETS | AMOUNT |
| Secured Loan Bank Loan | 1,00,000 |
(Secured by the issue of Rs. 1,25,000, 10% debentures as collateral security)
SECOND METHOD: The journal entries are made in the second method which are as follows:
On the issue of debentures as collateral security
Debentures suspense A/c Dr.
To Debentures A/c
On repayment of loan and release of debentures
Debentures A/c Dr.
To Debenture Suspense A/c