Issue of Debentures

Debentures are key financial instruments used by companies to raise funds, entailing various features and types. This includes recognition of debt, external equity status, specified interest rates, fixed repayment terms, and different security options. The issuance of debentures for non-cash considerations involves scenarios like asset or business acquisitions, with corresponding accounting entries.

• Debentures
• Finance
• Types
• Features
• Issuance

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1. Issue of Debentures

2. Debentures 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

3. Features of Debentures A certificate which acknowledges debt of a company Considered as external equity Rate of interest on debenture is specified Mode and period of repayment is fixed

4. Types of Debentures Security Records Secured Unsecured Registered Bearer Redemption Coupon Rate Specific Coupon Rate Zero Coupon Rate Redeemable Irredeemable Convertibility Non Convertible Convertible

5. Issue of Debentures for consideration other than cash Debentures

6. Issue of Debentures for consideration other than cash 1 When the assets are purchased and debentures are issued 2 When a business is purchased and debenture are issued

7. Issue of Debentures for consideration other than cash 1 When the assets are purchased and debentures are issued Date Particulars ` ` Sundry Assets A/c Dr. To Vendors (Being the purchase of sundry assets) Vendors A/c Dr. To Debenture A/c Any of the two entries will appear as per the case may be (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)

8. Issue of Debentures for consideration other than cash 2 When a business is purchased and debenture are issued Purchase consideration is more than net value of the assets Purchase consideration is equal to net value of the assets Purchase consideration is less than net value of the assets Purchase Purchase Purchase consideration is equal to net value of the assets consideration is more than net value of the assets consideration is less than net value of the assets

9. When a business is purchased and debenture are issued Purchase consideration is equal to net value of the assets Journal Entries Date Particulars ` ` With the value of asset With the purchase consideration With the value of liability Sundry Assets A/c Dr. To Vendors To Sundry Liabilities A/c (Being liabilities consideration) sundry taken assets over acquired a and purchase

10. When a business is purchased and debenture are issued Purchase consideration is more than the net value of the assets Journal Entries Date Particulars ` ` With the value of asset With the excess purchase consideration With the purchase consideration With the value of liabilities 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)

11. When a business is purchased and debenture are issued Purchase consideration is less than the net value of the assets Journal Entries Date Particulars ` ` With the value of asset With the excess purchase consideration With the purchase consideration With the value of liabilities 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)

12. Issue of Debentures as Collateral Security Debentures ` Debentures as Collateral Security

13. Issue of Debentures as Collateral Security Method - 1 No entry is recorded at the time of issuing such debentures. Balance Sheet Liabilities Secured Loans Bank Loan (Secured by issue of ` 5,000, 10% debentures as collateral security) Method - 2 Issue of debenture as collateral security recorded Debenture Suspense A/c Dr. To Debenture A/c (Being the issue of debenture as collateral security issued) Illustration Illustration

14. Issue of Debentures as Collateral Security 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 Method - 1 Method - 2

15. Issue of Debentures as Collateral Security Method - 1 Method - 1 Balance Sheet of ABC Ltd Particulars ` Particulars ` Secured Loans Loan from PNB (Secured by issue of ` 1,000, 10% Debentures of 100 each as collateral security) 80,000

16. Issue of Debentures as Collateral Security Method - 2 Method - 2 Journal 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 Balance Sheet of ABC Ltd Particulars ` Particulars ` Secured Loans 1,000, 9% Debenture Loan from PNB (Secured by issue of ` 1,000, 10% Debentures of 100 each as collateral security) Miscellaneous Expenditure Debenture Suspense A/c 1,00,000 1,00,000 80,000

17. Redemption of Debentures

18. Redemption 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. Raise Fresh Capital Utilise the profit Sources of Redemption of Debentures Sale of Assets Surplus Funds

19. Methods of Redemption of Debentures In installment by draw of lots On Maturity in lump-sum By purchase in open market By Conversion

20. Methods of Redemption 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. Face value Market Price Face value Market Price At Par At premium At Par At premium

21. Methods of Redemption of Debentures On Maturity in lump-sum At Par On Debentures becoming due for payment Debenture A/c Dr. (with nominal account) To Debenture Holders A/c On Redemption Debenture Holders A/c Dr. (with nominal account) To Bank A/c

22. Methods of Redemption of Debentures On Maturity in lump-sum At Premium On Debentures becoming due for payment Debenture A/c Dr.(with nominal account) Premium on redemption of debenture Dr. (with premium payable) To Debenture Holders A/c On Redemption Debenture Holders A/c Dr.(with the amount paid) To Bank A/c

23. 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 For immediate cancellation Keeping them as investment

24. Methods of Redemption of Debentures By purchase in open market For immediate cancellation On purchase of Debentures Own Debenture A/c Dr. (Cost of own debentures) To Bank A/c On cancellation of own 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 Reserve Profit on cancellation of own debentures Dr. To Capital Reserve A/c

25. Methods of Redemption of Debentures By purchase in open market For investment purpose On purchase of Debentures Investment in Own Debenture A/c Dr. To Bank A/c On cancellation of own 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 Reserve Profit on cancellation of own debentures Dr. To Capital Reserve A/c

26. Methods of Redemption of Debentures Redemption by Conversion Amount due to Debentures holders Par Premium Debenture A/c Dr. To Debenture holders A/c Debenture A/c Dr. Premium on Redemption A/c Dr. To Debenture holders A/c Discharge obligation by issue of Shares & Debentures Par Premium Debenture holders A/c Dr. To Share/Debenture A/c Debenture holders A/c Dr. To Share/Debenture A/c To Securities Premium A/c Discount Debenture holders A/c Dr. Discount on issue of share A/c Dr. To Share/Debenture A/c