Question

When debentures are issued as collateral security, which of the following treatment can be adopted?

• A. No accounting entry is required to issue debentures as collateral security
• B. Pass following entry for issue debentures as collateral security
  Debentures Suspense A/c Dr.
  To Debentures A/c
• C. (A) or (B)
• D. None of the above

Answer 1

Answer: (C)

(A) or (B)

When debentures are issued as collateral security, following methods are used:

(i) First method : No Journal entry to be made in the books of accounts of the company for debentures issued as collateral security. A note of this fact is given in this case.

(ii) Second method : Entry to be made in the books of accounts of the company. A journal entry is made on the issue of debentures as a collateral security, Debentures Suspense Account is debited because no cash is received for such issue.