Question

What is meant by ‘Issue of debentures for Consideration other than Cash’?

Answer 1

If a company purchases assets from its suppliers or vendors, then instead of paying them in cash the company issues debentures to them. This is known as issue of debenture for consideration other than cash. The issue of debenture for consideration other than cash serves the purpose of both the vendor as well as of the purchaser (company). From the purchaser’s point of view, purchasing an asset against the issue of debentures requires no additional cost for raising loans or arranging funds immediately. On the other hand, the vendor gets interest on the amount of debentures received. In this case, payment is deferred by issue of debentures and interest is paid for time lag payment. Debentures may be issued at par, premium or discount to the vendor.

Accounting treatment for Issue of Debentures for Consideration other than Cash

1. For purchase of Assets:

Assets A/c		Dr.
	To Vendor A/c
(Asset Purchased)

2. For Issue of Debentures

a. If debentures are issued at Par:

Vendor A/c		Dr.
	To Debentures A/c
(Debenture issued to Vendor at par )

b. If debentures are issued at Premium

Vendor A/c		Dr.
	To Debentures A/c To Securities Premium A/c
(Debenture issued to Vendor at premium)

c) If debentures are issued at Discount

Vendor A/c		Dr.
Discount on Issue of Debentures		Dr.
	To Debentures A/c
(Debenture issued to Vendor at discount )