SUBECT: ACCOUNTANCY

CLASS: XII(SESSION 2020-21)

UNIT 3 – ACCOUNTING FOR COMPANIES
Ch.- 9 Issue of Debentures

Debenture:- It is a written instrument or document issued by the company acknowledging a debt.

Debenture Certificate:- is an agreement between the company and the debenture holders for repayment of
principal amount on a specified date and payment of interest at the specified percent either yearly or half yearly.

Issue of Debentures as Collateral Security

Collateral Security means in addition to the primary or principal security. It will be realized by the lender only if
the amount (loan plus interest) due cannot be recovered by realizing the primary or principal security.
Debentures issues as a collateral security can be dealt with in two ways:-
1. First method:- When journal entry is not passed
Entry for the issue of debentures as collateral security is not passed in the books of account at the time of
issuing such debentures. But the fact has to be disclosed in the books as per full disclosure principle.
Q 28
Balance Sheet (Extract)
of X Ltd.
as at 31st March, 2020
Particulars Note No. Amount
I. EQUITY AND LIABILITIES
 Non Current Liabilities
 Long Term Borrowings 1 3,00,000

Note to Account:-

1. Long term borrowings

Term loan from IDBI Bank 3,00,000
(secured by issue of 4,000, 9% Debentures of 100
each as collateral security)
3,00,000

2. Second method:- when journal entry is passed

Date Particulars
Bank A/c ………………………… Dr 3,00,000
To Bank Loan 3,00,000
(Being Loan raised from IDBI bank secured by issue of
4,000, 9% Debentures of 100 each as collateral security)
Debenture Suspense A/c ………….Dr 4,00,000
To 9% Debentures 4,00,000
(4,000, 9% Debentures of 100 each issued as collateral
security against loan raised from IDBI bank)

Balance Sheet (Extract)

 of X Ltd.
as at 31st March, 2020
Particulars Note No. Amount
I. EQUITY AND LIABILITIES
 Non Current Liabilities
 Long Term Borrowings 1 3,00,000

Note to Account:-

1. Long term borrowings

Term loan from IDBI Bank 3,00,000
9% Debentures 4,00,000
(issued as collateral security against loan from IDBI)
Less Debenture Suspense (4,00,000) ----
3,00,000

Various cases of issue of debentures from the point of view of redemption

Debentures can be issued at par, premium or discount and can be redeemed at par or premium. If the
debentures are redeemed at premium, premium payable at the time of redemption is to be recorded at the
time of issue only as per the prudence concept.
The nature of premium payable at the time of redemption is a liability or personal account. It also results
into loss as we are repaying amount above the face value of debenture.
There are six possible cases of issue of debentures with the terms of redemption:-

 Issued at Par (100) Redeemed at Par (100)

Date Particulars
Bank ………………………… Dr 100
To Debenture Application & Allotment 100
(Being application money received)
Debenture Application & Allotment …. Dr 100
To X% Debentures 100
(being debentures allotted)

 Issued at par (100) Redeemed at Premium (103)

Date Particulars
Bank ………………………… Dr 100
To Debenture Application & Allotment 100
(Being application money received)
Debenture Application & Allotment …. Dr 100
Loss on issue of Debentures ……………Dr. 3
To X% Debentures 100
To Premium on Redemption 3
(being debentures allotted)

 Issued at Premium (105) Redeemed at Par (100)

 Date Particulars
Bank ………………………… Dr 105
To Debenture Application & Allotment 105
(Being application money received)
Debenture Application & Allotment …. Dr 105
To X% Debentures 100
To Security Premium Reserve 5
(being debentures allotted)

 Issued at Premium (105) Redeemed at Premium (103)

Date Particulars
Bank ………………………… Dr 105
To Debenture Application & Allotment 105
(Being application money received)
Debenture Application & Allotment …. Dr 105
Loss on issue of Debentures ……………Dr. 3
To X% Debentures 100
To Security Premium Reserve 5
To Premium on Redemption 3
(being debentures allotted)

 Issued at Discount (98) Redeemed at Par (100)

Date Particulars
Bank ………………………… Dr 98
To Debenture Application & Allotment 98
(Being application money received)
Debenture Application & Allotment …. Dr 98
Discount on issue of debentures ……….Dr 2 100
To X% Debentures
(being debentures allotted)

 Issued at par (99) Redeemed at Premium (103)

Date Particulars
Bank ………………………… Dr 99
To Debenture Application & Allotment 99
(Being application money received)
Debenture Application & Allotment …. Dr 99
Loss on issue of Debentures ……………Dr. 4
To X% Debentures 100
To Premium on Redemption 3
(being debentures allotted)