Professional Documents
Culture Documents
Bba - 28.04.2014
Bba - 28.04.2014
Bba - 28.04.2014
Meaning :
Debenture is an instrument in writing for a
fixed period given by a company acknowledging
the liability for total amount received as a result
of issue of debenture and agreeing thereby to
pay the money raised after the expiry of
stipulated period at a certain rate of interest per
annum.
Types of Debentures
1. From Security point of view
a. Naked/Simple Debentures
b. Mortgage Debentures
b. Irredeemable debentures
b. Second Debentures
b. Registered Debentures
b. Non-Convertible Debentures
Differenc
e
Basis of
Shares
Debentures
difference
1. Nature
funds
2. Status
Owners of Company
Creditors of Company
5. Right to
return
case of loss.
3. Voting Rights
4. Control
earning profit.
Difference Between
Debenture and Debenture
Stock
Basis of
Debenture
Debenture Stock
difference
1. Fully paid up
paid up
2. Transfer
3. Distinct numbers
fully.
in fractions also.
numbers.
Issue of
Debentures
The issue aspect of debentures can be studied from different angles are
given below:
L..F
.
Dr.
Dr.
To Debentures A/c
To Debentures premium A/c (if issued at premium)
Dr.
(Rs.)
Cr.
(Rs.)
For consideration other than cash. When debentures are issued to the vendors
in lieu of purchase consideration, that is known as issue of debentures for
consideration other than cash. The journal entries in this case will be:
(i)
L.F.
Dr. (Rs.)
Cr. (Rs.)
Dr.
To Vendor A/c
(ii)
L.F.
Dr. (Rs.)
Cr. (Rs.)
Dr.
To Debentures A/c
In this case also debentures can be issued at par or at discount or at premium for
which due adjustment is to be made in the second entry above like the previous case.
if the company does not repay the loan and the interest and the main security is
not sufficient, the bank will be entitled to sell the debentures in the market or the
bank may keep the debentures with it.
If the company repays the loan, the bank will return the debentures issued as
collateral security to the company.
First method: No entry need to be passed in the books of the company when
debentures are issued as collateral security. Debentures become alive only
when loan is not repaid. The fact of such an issue of debentures must be
clearly mentioned in the Balance Sheet by way of a note under the loan and
debentures as shown below:
Second method. Following journal entry can be passed for issue of debentures as
collateral security:
Particulars
L.F.
Dr. (Rs.)
Cr. (Rs.)
Dr.
To Debentures A/c
As and when the loan is paid, the entry passed above is reversed.
When the amount collected on debentures issued is equal to the face value as
issue of debentures of Rs. 100 for Rs. 100, it is said to be issued at par.
When the amount collected is more than the face value of a debenture as
issue of debenture of Rs. 100 at Rs.105, it is said to be at premium.
Particulars
(i)
L.F.
Dr. (Rs.)
Cr. (Rs.)
Dr.
100
To Debentures A/c
100
Dr.
105
100
A/c
(iii) When debentures are issued at discount
Bank A/c (with net amount received)
Debentures discount A/c
Dr.
Dr.
95
5
100
Case I
Conditions of issue
Conditions of redemption
(a)
Issued at par
Repayable at par
(b)
Issued at premium
Repayable at par
(c)
Issued at discount
Repayable at par
(d)
Issued at par
Repayable at premium
(e)
Issued at discount
Repayable at premium
(f)
Issued at premium
Repayable at premium
L.F.
Dr.
To debentures a/c
(b) On redemption of debentures, the
entry will be:
Debentures Account
To bank a/c
Dr.
Dr. (Rs.)
Cr. (Rs.)
Particulars
L.F.
Dr.
To debentures a/c
To debentures premium a/c
(b) On redemption of debentures, the
entry will be
Debentures a/c
To bank a/c
Dr.
Dr.
(Rs.)
Cr. (Rs.)
Particulars
L.F.
Dr.
Dr.
Dr.
(Rs.)
Cr. (Rs.)
Particulars
L.F.
Dr.
Dr.
Dr.
(Rs.)
Cr.
(Rs.)
L.F.
Dr.
Dr.
Dr.
Dr.
(Rs.)
Cr.
(Rs.)
L.F
.
Dr.
Dr.
Dr.
(Rs.)
Cr.
(Rs.)
Redemption of debentures
Redemption of debentures refers to the discharge of liability on
account of debentures. Following three problems require attention
when company wants to redeem the debentures.
Sources of finance
Redemption out of profits
Redemption out of capital
Out of provisions made for redemption
By converting into new shares and debentures
L.F.
Dr.
(Rs.)
Cr.
(Rs.)
L.F.
Dr.
(Rs.)
Cr.
(Rs.)
Dr.
To Bank a/c
Dr.
c) When balance for DRR A/c is not required for redemption and is
transferred to general reserve account.
Particulars
L.F.
Dr. (Rs.)
Cr. (Rs.)
L.F.
Dr.
(Rs.)
Cr.
(Rs.)
Dr.
To bank account
Sometimes instead of passing one entry given above , the following two
entries are passed:
a)
Particulars
Debentures account
L.F.
Dr.
(Rs.)
Cr.
(Rs.)
L.F.
Dr.
(Rs.)
Cr.
(Rs.)
Dr.
b)
Particulars
Dr.
Redemption by conversion
Sometimes the debenture holders of the company are given the option to
convert their debentures into shares or new debentures within a stipulated
period. Such option is exercised by debenture holders only when they are
very sure about the progress of the progress of the company. Following
entry will be made:
Particulars
Old debentures a/c
L.F
.
Dr.
Dr.
(Rs.)
Cr.
(Rs.)
Accounting Entries:
At The End Of 1st Year
(i)
L.F.
Dr.
(Rs.)
Cr.
(Rs.)
Dr.
(ii) For the amount kept aside for redemption invested in securities
Particulars
Sinking fund investment account
Dr.
To bank account
L.F.
Dr.(Rs.)
Cr. (Rs.)
Dr.
Dr.
Dr.
Dr.
Dr.
Dr.
To bank account
Dr.
Insurance Policy
Method
Under this method a fixed amount of premium is paid every year to the insurance
company which in turn agrees to pay the necessary amount for redemption of
debentures at the end of a specific period.
JOURNAL ENTRIES
First year
Particulars
L.F.
Dr.
Dr.
To Bank A/c
NOTE:
. These entries passed every year including last year also
Dr. (Rs.)
Cr. (Rs.)
Following entries will be passed at the end of the specific period on realisation of the
policy:
Particulars
(i)
L.F.
Dr.
Dr.
Debenture A/c
Dr.
To Bank A/c
(iv) For balance of Debenture Redemption Fund A/c
transferred to General Reserve.
Debenture Redemption fund a/c
To General Reserve A/c
Dr.
Dr. (Rs.)
Cr. (Rs.)
Own Debentures
Directors, if authorised by the terms of the contract, can purchase
debentures whenever they find the market price favourable to the company.
Dr
To Bank A/c
Dr.
Dr.
Dr.
To Bank a/c
To Interest on own debentures a/c
Thank You