ISSUE AND

REDEMPTION OF
DEBENTURES
 Meaning of Debentures
The word ‘debenture’ has been derived from a
Latin word ‘debere’ which means to borrow. Debenture
is a written instrument acknowledging a debt under the
common seal of the company.
 BOND
Bond is also an instrument of
acknowledgement of debt.
Traditionally, the Government issued
bonds.
 Distinction between Shares and
Debentures Shares
Basis Debentures
Ownership Ownership Capital Borrowed Capital
Return Dividend Interest
Repayment Not returned during the life of the Returned only after the completion
company of specific period.

Voting Rights Have voting rights Do not have voting right.

Security Not Secured Secured by assets of company
Convertibilit Can not be converted into Can be converted into shares.
y Debentures
 Types of Debenture/Bond
Mode of
Coupan Registrat
Security Tenure Redempti
Rate ion
on
Zero
Redeemabl
Secured Convertible Coupan Registered
e
Rate

Irredeemab Nonconvert Specific Unregistere

Mortgage
le ible Rate d
On Application
On opening account in scheduled Debenture allotted/transferred to
bank Debenture Capital)
Bank A/c Dr. For Money refunded on rejected
To Debenture Application A/c application
(Amount received on application for Debenture Application A/c Dr.
— Debenture @ Rs. ______ per To Bank A/c
Debenture) (Application money returned on
For Transfer of Application Money rejected application for ___
Debenture Application A/c Dr. Debenture)
To Debenture Capital A/c
(Application money on _____
On Allotment
For Amount Due on Allotment adjusted to the amount due on
Debenture Allotment A/c Dr. allotment).
To Debenture Capital A/c For Receipt of Allotment Money
For Adjustment of Excess Bank A/c Dr.
Application Money To Debenture Allotment
Debenture Application A/c Dr. A/c
To Debenture Allotment (Allotment money received on
A/c ___ Debenture @ Rs. — per
(Application Money on __ Debenture Combined Account)
Debenture @ Rs__per Debenture
On Receipt of Call Money
For Call Amount Due
Debenture Call A/c Dr.
To Debenture Capital A/c
(Call money due on ___ Debenture @ Rs. ____ per
Debenture)
For Receipt of Call Amount
Bank A/c Dr.
To Debenture Call A/c
(Call money received)
 Issue of Debentures at a Discount
Debenture is issued at a price below its nominal value.
It is a capital loss and can be written-off either by
debiting it to profit and loss.
12% Debenture Allotment A/c Dr.
Discount on Issue of Debentures A/c Dr.
To 12% Debenture A/c
(Allotment money due on debentures)
 Issue of Debentures at Premium
The price charged is more than its nominal value.
Amount of premium is credited to securities premium
account and is shown on the liabilities side of the balance
sheet under the head reserves and surpluses.
10% Debenture Allotment A/c Dr.
To 10% Debentures A/c
To Securities Premium A/c
(Allotment money due on debentures)
 Issue of Debentures for
Consideration other than
1. Asset A/c Dr. CashDiscount on Issue of debentures
To Vendor A/c Dr.
(Asset purchased) To debentures Capital A/c
2. When debentures are issued at (debentures issued at discount)
par 4. When debentures are issued at
Vendors A/C Dr. premium
To debentures Capital A/c Vendors A/C Dr.
(debentures issued at par) To debentures Capital A/c
3. When debentures are issued at To Securities Premium A/c
Discount (debentures issued at premium)
Vendors A/C Dr.
 Issue of Debentures as a Collateral
Security
Any security in addition to primary security is called ‘collateral
security’. The amount of debentures will be transferred to debenture
suspense account.
Debenture Suspense A/c Dr.
To 19% Debentures A/c
For cancellation of 19% debentures as collateral security on
repayment of bank loan.
19% Debentures A/c Dr.
To Debenture Suspense A/c
1. Issue At Par And Redeemable At Par
(a) Bank A/c Dr.
To Debenture Application & Allotment
A/c
(Receipt of application money)
(b) Debenture Application & Allotment A/c Dr.
To Debentures A/c
(Allotment of debentures)
2. Issue At A Discount And Redeemable
At Par (a) Bank A/c Dr.
To Debenture Application &
Allotment A/c
(Receipt of application money)
(b) Debenture Application & Allotment A/c
Dr.
Discount on Issue of Debentures A/c
Dr.
To Debentures A/c
(Allotment of debentures at a discount)
3. Issue At Premium And Redemption
(a) Bank A/cAt
Dr. Par
To Debenture Application &
Allotment A/c
(Receipt of application money)
(b) Debenture Application & Allotment A/c
Dr.
To Debentures A/c
To Securities Premium A/c
(Allotment of debentures at a premium)
 4. Issue At Par And Redeemable At
Premium
(A) Bank A/C Dr.
To Debenture Application & Allotment A/C
(Receipt Of Application Money)
(B) Debenture Application & Allotment A/C Dr.
Loss On Issue Of Debentures A/C Dr.(With Premium On Redemption)
To Debentures A/C (With Nominal Value Of Debenture)
To Premium On Redemption Of Debenture A/C(with Premium On
Redemption)
(Allotment Of Debentures At Par And Redeemable At A Premium)
5. Issue At Discount And Redemption At
Premium
Bank A/c Dr.
To Debenture Application & Allotment A/c
(Receipt of application money)
Debenture Application & Allotment A/c Dr.
Loss on Issue of Debentures A/c Dr. (with discount on issue plus premium on
redemption)
To Debentures A/c (with nominal value of debenture)
To Premium on Redemption of Debentures A/c (with premium on
redemption)
(Allotment of debentures at a discount and redeemable at premium)
6. Issued At A Premium And Redeemable At
Premium
Bank A/c Dr.
To Debenture Application & Allotment A/c
(Receipt of application money)
Debenture Application & Allotment A/c Dr.
Loss on Issue of Debentures A/c Dr.(with premium on redemption)
To Debentures A/c (with nominal value of debenture)
To Securities Premium A/c (with premium on issue)
To Premium on Redemption of Debentures A/c (with premium on
redemption)
INTEREST ON DEBENTURES
1. When interest is due
Debenture Interest A/c Dr. 3. On transfer debenture Interest Account to
To Income Tax payable A/c statement of Profit and Loss
To Debentureholders A/c Profit and Loss A/c Dr.
(Amount of interest due on debenture and To Debenture Interest A/c
tax deducted at source ) (Debenture interest transferred to profit and
2. For payment of interest to loss A/c)
debentureholders 4. On payment of tax deducted at source to
Debentureholders A/c Dr. Government
To Bank A/c Income Tax Payable A/c Dr.
(Amount of interest paid to To Bank A/c
debentureholders) (Payment of tax deducted at source on
interest on debentures)
Writing-Off Discount/Loss On Issue Of
Debentures
The discount/loss on issue of debentures is a capital loss
or a fictitious asset.
Securities Premium Reserve A/C Dr.
Statement of Profit and Loss Dr.
To Discount/Loss on Issue of Debentures A/c
(Discount/loss on issue of debentures written-off)