Company accounts - Debentures,Issue of Debenture,types of debentures,journal entries on issue of debenture,interest on debenture

1. Topic: Issue of Debentures
Presented by:Pooja Agarwal
Class:XII(D)

3. Meaning of Debenture
Company may need additional amount of money for a long
period. It cannot issue shares every time. It can raise loan
from the public.
The amount of loan can be divided into units of small
denominations and the company can sell them to the public.
Each unit is called a ‘debenture’ and holder of such units is
called debenture holder. The amount so raised is loan for the
company.
Features
 Borrowed funds
 Fixed rate of interest
 Security
 Redeemable
 No voting rights

6. Issue of Debentures
 Issuing debentures means issue of a certificate by the company under its
seal whichis an acknowledgementof debt taken by the company.
 Procedure of issue of debentures:-
• Issuing Prospectus
• Inviting Applications
• Issuing letters of Allotment
 Issue of Debentures takes various forms suchas :
• Debentures issuedfor cash
• Debentures issuedfor consideration other than cash
• Debentures issuedas collateral security
Further, debentures may be issuedas under:
-At par
-At premium
-At discount

7. DEBENTUREISSUEDFOR CASH
At par
• Receipt of Application money-
Bank A/c Dr.
To Debentures Application A/c
• Application money transfer entry-
Debentures Application A/c Dr.
To Debentures A/c
• Money due on Allotment-
Debenture Allotment A/c Dr.
To Debentures A/c
• Money receipt entry-
Bank A/c Dr.
To Debenture Allotment A/c
• First and final call is made-
Debentures first and final call A/c Dr.
To Debentures A/c
• Money receipt entry-
Bank A/c. Dr.
To Debentures first and final call A/c

8. Issue of Debentures at
Premium
The premium on issue of debentures is a capital receipt and is
credited to Securities Premium Reserve A/c and shown in the
Equity and Liabilities part of the Balance Sheet as Reserves
and Surplus under Shareholder’s funds.
Utilization of Securities Premium Reserve A/c is specified
under section 52(2) of the Companies Act,2013.
Entry-Debentures Allotment A/c Dr.
To Debentures A/c
To Securities Premium A/c
(Amount due on Allotment along with premium of Rs.)
Issue of Debentures at
Discount
It is a capital loss which shall be written off within 12 months
from the date of Balance Sheet or within the period of
Operating cycle & until it is written off completely, it is shown
on the Asset side of Balance Sheet, under the heading ‘Current
Assets’ and sub-head ‘Other Current Asset'. It is allowed on
allotment, unless, otherwise, mentioned.
Entry-Discount on issue of debentures A/c. Dr.
To Debentures A/c
(Allotment money due. The amount of discount is @
Rs…….per debenture)

9. Issueof debentures for consideration
other than cash
 On purchase of Business
 Sundry Assets A/C Dr.
To Sundry Liabilities
To Vendor's A/c
 On issue of Debentures to Vendor:-
 At Par:-Vendor’s A/c Dr.
To Debentures A/c
 At Premium:-Vendor’s A/c Dr.
To Debentures A/c
To Securities Premium A/c
 At Discount:-Vendor’s A/c Dr.
Debentures Discount A/c Dr.
To Debentures A/c
 On purchase of Fixed Assets
 Fixed Assets A/c Dr.
To Vendor’s A/c

10. Interest on Debentures
‘Debenture’ is always prefixed by a certain percentage say 9%Debentures or
12%Debentures.
Have you ever thought what meaning does this prefix carry? It is the rate of
interest per annum that will be paid to the debenture holders.
Companies generally pay interest on its debentures after every six months.
ACCOUNTING TREATMENT:-
 When interest is due-Debenture Interest A/c Dr.
To Tax deducted at
source A/c
To Debenture holders
A/c
 For payment of interest to debenture holders-Debenture
holders A/c Dr.
To Bank A/c
 On transfer of Debenture interest A/c to P&L A/c-Profit
&Loss A/c Dr.

11. Conclusion
Several companies decide to issue debentures to
raise capital, along with the other sources of long-
term finance. The companies need to follow the
regulations and the procedure associated with the
issuance of debentures. Further, they also need to
account debentures issued at a par, premiumor
discount accordingly.