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 Features of Debentures A certificate which acknowledges debt of a company ID: 1028947
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1. Issue of Debentures
2. DebenturesDebenture 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 DebenturesA certificate which acknowledges debt of a companyMode and period of repayment is fixedConsidered as external equityRate of interest on debenture is specified
4. Types of DebenturesSecurityRedemptionRecordsCoupon RateConvertibilitySecuredUnsecuredRedeemableIrredeemableRegisteredBearerSpecific Coupon RateZero Coupon RateConvertibleNon Convertible
5. Issue of Debentures for consideration other than cashDebentures
6. Issue of Debentures for consideration other than cashWhen the assets are purchased and debentures are issuedWhen a business is purchased and debenture are issued12
7. DateParticulars``Sundry Assets A/c …Dr. To Vendors(Being the purchase of sundry assets)Vendors A/c …Dr. To Debenture A/c(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) Any of the two entries will appear as per the case may beWhen the assets are purchased and debentures are issuedIssue of Debentures for consideration other than cash1
8. Issue of Debentures for consideration other than cashWhen a business is purchased and debenture are issued2Purchase consideration is equal to net value of the assets Purchase consideration is more than net value of the assets Purchase consideration is less than net value of the assets
9. Purchase consideration is equal to net value of the assets When a business is purchased and debenture are issuedDateParticulars``Sundry Assets A/c …Dr. To Vendors To Sundry Liabilities A/c(Being sundry assets acquired and liabilities taken over a purchase consideration)With the value of assetWith the purchase considerationWith the value of liabilityJournal Entries
10. Purchase consideration is more than the net value of the assets When a business is purchased and debenture are issuedDateParticulars``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)With the value of assetWith the excess purchase considerationWith the purchase considerationWith the value of liabilitiesJournal Entries
11. Purchase consideration is less than the net value of the assets When a business is purchased and debenture are issuedDateParticulars``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)With the value of assetWith the excess purchase considerationWith the purchase considerationWith the value of liabilitiesJournal Entries
12. Issue of Debentures as Collateral SecurityDebentures as Collateral SecurityDebentures`
13. Debenture Suspense A/c …Dr. To Debenture A/c(Being the issue of debenture as collateral security issued)Balance SheetLiabilitiesSecured LoansBank Loan(Secured by issue of ` 5,000, 10% debentures as collateral security)Issue of debenture as collateral security recordedNo entry is recorded at the time of issuing such debentures. Issue of Debentures as Collateral SecurityMethod - 1Method - 2Illustration
14. Issue of Debentures as Collateral SecurityIllustrationABC 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 - 1Method - 2
15. Issue of Debentures as Collateral SecurityBalance Sheet of ABC LtdParticulars `Particulars `Secured LoansLoan from PNB(Secured by issue of ` 1,000, 10% Debentures of 100 each as collateral security)80,000Method - 1
16. Issue of Debentures as Collateral SecurityMethod - 2Balance Sheet of ABC LtdParticulars `Particulars `Secured Loans1,000, 9% DebentureLoan from PNB(Secured by issue of ` 1,000, 10% Debentures of 100 each as collateral security)1,00,000 80,000Miscellaneous ExpenditureDebenture Suspense A/c1,00,000Particulars ``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--1,00,000Journal
17. Redemption of Debentures
18. Redemption of DebenturesRedemption of Debentures means repayment of the amount of debentures to the debenture holders or discharge of the liability on account of the debenture. Sources of Redemption of DebenturesRaise Fresh CapitalUtilise the profitSale of AssetsSurplus Funds
19. Methods of Redemption of DebenturesIn installment by draw of lotsBy ConversionOn Maturity in lump-sumBy purchase in open market
20. Methods of Redemption of DebenturesOn Maturity in lump-sumUnder this method all debenture are redeem at the end of a specified period i.e. on maturity at par or at a premium.At ParAt premiumFace valueMarket PriceFace valueMarket Price
21. At ParMethods of Redemption of DebenturesOn Maturity in lump-sumDebenture A/c …Dr. (with nominal account) To Debenture Holders A/cOn RedemptionOn Debentures becoming due for paymentDebenture Holders A/c …Dr. (with nominal account) To Bank A/c
22. Methods of Redemption of DebenturesOn Maturity in lump-sumAt PremiumDebenture A/c …Dr. (with nominal account)Premium on redemption of debenture …Dr. (with premium payable) To Debenture Holders A/c On RedemptionOn Debentures becoming due for paymentDebenture Holders A/c …Dr. (with the amount paid) To Bank A/c
23. Methods of Redemption of DebenturesBy purchase in open marketUnder 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 cancellationKeeping them as investment
24. For immediate cancellationOwn Debenture A/c …Dr. (Cost of own debentures) To Bank A/cOn cancellation of own debenturesOn purchase of DebenturesDebenture 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)Methods of Redemption of DebenturesBy purchase in open marketProfit transferred to Capital ReserveProfit on cancellation of own debentures…Dr. To Capital Reserve A/c
25. For investment purpose Investment in Own Debenture A/c …Dr. To Bank A/cOn cancellation of own debenturesOn purchase of DebenturesDebenture A/c …Dr. (with nominal account) To Investment in Own Debenture A/c ( with Cost) To Profit on cancellation of own debentures (with profit)Methods of Redemption of DebenturesBy purchase in open marketProfit transferred to Capital ReserveProfit on cancellation of own debentures…Dr. To Capital Reserve A/c
26. Debenture A/c …Dr. To Debenture holders A/cDischarge obligation by issue of Shares & DebenturesAmount due to Debentures holdersMethods of Redemption of DebenturesRedemption by ConversionDebenture A/c …Dr.Premium on Redemption A/c …Dr. To Debenture holders A/cParPremiumDebenture holders A/c …Dr. To Share/Debenture A/cParPremiumDiscountDebenture holders A/c …Dr. To Share/Debenture A/c To Securities Premium A/cDebenture holders A/c …Dr.Discount on issue of share A/c …Dr. To Share/Debenture A/c