Topic: Issue of Debentures

Presented by:Pooja AgarwalClass:XII(D)

Meaning of DebentureCompany may need additional amount of money for a

long period. It cannot issue shares every time. It can raise loan from the public.

The amount of loan can be divided into units of small denominations and the company can sell them to the

public.Each unit is called a ‘debenture’ and holder of such units is called debenture holder. The amount so raised is loan

for the company.Features Borrowed funds Fixed rate of interest Security Redeemable No voting rights Appointment of trustee

Issue of Debentures Issuing debentures means issue of a certificate by the

company under its seal which is an acknowledgement of debt taken by the company.

Procedure of issue of debentures:-• Issuing Prospectus

• Inviting Applications • Issuing letters of Allotment Issue of Debentures takes various forms such as :• Debentures issued for cash• Debentures issued for consideration other than cash• Debentures issued as collateral security Further, debentures may be issued as under: -At par -At premium -At discount

DEBENTURE ISSUED FOR CASHAt par• Receipt of Application money- Bank A/c Dr. To Debentures Application A/c• Application money transfer entry- Debentures Application A/c Dr. To Debentures A/c• Money due on Allotment- Debenture Allotment A/c Dr. To Debentures A/c• Money receipt entry- Bank A/c Dr. To Debenture Allotment A/c• First and final call is made- Debentures first and final call A/c Dr. To Debentures A/c

• Money receipt entry- Bank A/c. Dr. To Debentures first and final call A/c

Issue of Debentures at Premium

The premium on issue of debentures is a capital receipt and is credited to Securities Premium Reserve A/c and shown in the Equity and Liabilities part of the Balance Sheet as Reserves and Surplus under Shareholder’s funds. Utilization of Securities Premium Reserve A/c is specified under section 52(2) of the Companies Act,2013. Entry-Debentures Allotment A/c Dr. To Debentures A/c To Securities Premium A/c (Amount due on Allotment along with premium of Rs.)

Issue of Debentures at Discount

It is a capital loss which shall be written off within 12 months from the date of Balance Sheet or within the period of Operating cycle & until it is written off completely, it is shown on the Asset side of Balance Sheet, under the heading ‘Current Assets’ and sub-head ‘Other Current Asset'. It is allowed on allotment, unless, otherwise, mentioned.Entry-Discount on issue of debentures A/c. Dr. To Debentures A/c (Allotment money due. The amount of discount is @ Rs…….per debenture)

Issue of debentures for consideration other than cash On purchase of

Business Sundry Assets A/C Dr. To Sundry Liabilities To Vendor's A/c On issue of Debentures to Vendor:- At Par:-Vendor’s A/c Dr. To Debentures A/c At Premium:-Vendor’s A/c Dr. To Debentures A/c To Securities Premium A/c At Discount:-Vendor’s A/c

Dr. Debentures Discount A/c Dr. To Debentures A/c

On purchase of Fixed Assets

Fixed Assets A/c Dr.

To Vendor’s A/c

Interest on Debentures‘Debenture’ is always prefixed by a certain

percentage say 9%Debentures or 12%Debentures.

Have you ever thought what meaning does this prefix carry? It is the rate of interest per

annum that will be paid to the debenture holders.

Companies generally pay interest on its debentures after every six months.

ACCOUNTING TREATMENT:- When interest is due-Debenture Interest A/c Dr. To Tax deducted at source A/c To Debenture holders A/c For payment of interest to debenture holders-

Debenture holders A/c Dr. To Bank A/c On transfer of Debenture interest A/c to P&L A/c-

Profit &Loss A/c Dr. To Debenture Interest A/c On payment of tax deducted at source to

government - Tax deducted at source A/c Dr. To Bank A/c

ConclusionSeveral companies decide to issue debentures to raise capital, along

with the other sources of long-term finance. The companies need to follow

the regulations and the procedure associated with the issuance of

debentures. Further, they also need to account debentures issued at a

par, premium or discount accordingly.