Terms of Issue of Debentures

What is Issue of Debentures?

The issue of Debentures seems to be much alike to the issue of shares by an enterprise. Here, the money can be accumulated either in round sum or in installments. The accounting treatment of the 2 is quite alike. Now, the debentures can be either issued for some other considerations or cash. Often issue or circulation of debentures is done as a collateral security.

When an enterprise issues debentures, it normally refers to the terms on which they would be reclaimed during their maturity. Redemption of debentures refers to the clearance of liability on detailed account of debentures by the repayment made to the debenture holders. Debentures can be reclaimed either at a premium or at par. Relying upon the terms and conditions of circulation and redemption of debentures, the below mentioned 6 circumstances are usually found in practice :

  • Issued or circulated at par and reclaimable at par
  • Issued or circulated at a discount and reclaimable at par
  • Issued or circulated at a premium and reclaimable at par
  • Issued or circulated at par and reclaimable at a premium
  • Issued or circulated at a discount and redemption at a premium
  • Issued or circulated at a premium and reclaimable at a premium

In the above six scenarios, the following journal entries would be passed :

Particulars Dr/Cr
Issued or circulated at par and reclaimable at par :

Bank A/c

To Debenture Application and Allotment A/c

(Receipt of application money)

 

Dr.

Issued or circulated at a discount and reclaimable at par :

  • Bank A/c

To Debenture Application & Allotment A/c

(Receipt of application money)

  • Debenture Application & Allotment A/c

Discount on Issue of Debentures A/c

To Debentures A/c

(Allotment of debentures at a discount)

 

Dr.

 

Dr.

Dr.

Issued or circulated at a premium and reclaimable at par :

  • Bank A/c

To Debenture Application & Allotment A/c

(Receipt of application money)

  • Debenture Application & Allotment A/c

To Debentures A/c

To Securities Premium Reserve A/c

(Allotment of debentures at a premium)

 

Dr.

Dr.

Issued or circulated at par and reclaimable at a premium :

  • Bank A/c

To Debenture Application & Allotment A/c

(Receipt of application money)

  • Debenture Application & Allotment A/c

Loss on Issue of Debentures A/c

 

To Debentures A/c

 

To Premium on Redemption of Debenture A/c

(Allotment of debentures at par and redeemable at a premium)

Dr.

 

Dr.

 

Dr. (with premium on redemption)

(with nominal value of debenture)

(with premium on redemption)

Issued or circulated at a discount and Redemption at a premium :

Bank A/c

To Debenture Application & Allotment A/c

(Receipt of application money)

Debenture Application & Allotment A/c

To Debentures A/c

To Premium on Redemption of Debentures A/c

(Allotment of debentures at a discount and redeemable at premium)

Dr.

 

Dr. (with discount on issue plus premium on redemption)

(with nominal value of debenture)

(with premium on redemption)

Issued or circulated at a premium and reclaimable at a premium

Bank A/c

To Debenture Application & Allotment A/c

(Receipt of application money)

Debenture Application & Allotment A/c

Loss on Issue of Debentures A/c

To Debentures A/c

To Securities Premium Reserve A/c

To Premium on Redemption of Debentures A/c

Dr.

Dr.

Dr. (with premium on redemption)

(with nominal value of debenture)

(with premium on issue)

(with premium on redemption)

NOTE : The above furnished journal entries are fetched from the Official NCERT website.

The above mentioned is the concept, that is elucidated in detail about the Terms of Issue of Debentures for the class 12 Commerce students. To know more, stay tuned to BYJUS.