A debenture is an acknowledgement of a debt. Debenture-holders are creditors of the company and receive interest whether or not there is a profit.
Issue
| Situation | Entry |
|---|---|
| Issue at par | Bank A/c Dr. To Debentures A/c (through Debenture Application & Allotment A/c) |
| Issue at a premium | Credit Securities Premium A/c with the premium |
| Issue at a discount | Debit Discount on Issue of Debentures A/c with the discount |
| Redeemable at a premium | Debit Loss on Issue of Debentures A/c, credit Premium on Redemption of Debentures A/c |
Writing off discount or loss on issue
Write it off first from Securities Premium, and the balance from the Statement of Profit and Loss, in the year the debentures are issued (or over the life of the debentures, as the question requires).
Consideration other than cash
When debentures are issued to a vendor for assets bought: Sundry Assets A/c Dr. To Vendor A/c; then Vendor A/c Dr. To Debentures A/c (and premium).
Collateral security
Debentures given as additional security for a loan may be recorded with Debenture Suspense A/c Dr. To Debentures A/c, and shown as a deduction in the notes; or just mentioned in the notes to the loan.
Interest on debentures
Interest is a charge against profit. Tax deducted at source is credited to TDS Payable and paid to the government.
Recorded lectures for this chapter
6 lectures (2 h 08 min) by Ronak Dugar in Class 12 Accountancy Book 2: Company Accounts — Shares and Debentures. Enrolled students watch them in the student portal.
- Class 1 - Basics of Debentures, Journal Entries, Pro Rata Question, Application of Discount on issue.29 min
- Class 2 - Issue of Debentures for consideration other than cash (vendor)25 min
- Class 3 - Issue of Debentures from POV of Redemption Cases with a Practical Question30 min
- Class 4 - Issue of Debentures as Collateral Security, Interest on Debentures, Write off Entry19 min
- Class 5 - Comprehensive Question10 min
- Class 6 - Practical Question of Interest on Debentures11 min
Learn this chapter with Ronak Sir
Classroom batches in Sector 9, Faridabad and recorded lectures online. Book a free demo class or call +91 83685 45620.