Debentures are also known bonds and debt but there are slightly differences.
Company issues debentures; government and semi government issues bonds.
Both debentures and bonds are long-term loan.
The owner of debentures is called debenture holders.
Debentures have fixed interest rate and maturity period.
Normally, interest is payable annually or sometime half yearly.
Debenture holders have priority to receive interest and refund money before equity shareholder at the time dissolution of firm.
When a limited company needs loan, it can issued debentures for long term, takes bank overdraft for short term or collateral security.
These types of debentures are issued to take loan from banks or financial institutions.
Generally, values of debentures are more than loan.
But interest is calculated on loan not on deposited debentures.
If the company cannot pay its loan and interest within time, bank or financial institute automatically becomes debenture holders. In this condition, the company has to pay more interest.
Journal Entries
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
Due |
Loan taken |
|
|
|
|
|
Bank account To Bank loan account (Being- loan taken from bank) |
Dr
|
|
xxxx |
xxxx |
Received |
Debentures issued for collateral security |
|
|
|
|
|
Debentures suspense account To Debentures account (Being- …. debentures of Rs….. each issued as collateral security for loan) |
Dr
|
|
xxxx |
xxxx |
Balance Sheet
ABC Company Ltd
Liabilities + capital + profit |
Amount |
Assets . |
Amount |
Bank loan Debentures (debentures of Rs…. each issued as collateral security for loan) |
|
Bank balance Debentures suspense |
|
|
|
Or
Extracted Balance sheet
Particulars |
Note No. |
As on 31 Mar CY |
As on 31 Mar LY |
|
(I) EQUITY AND LIABILITIES |
|
|
|
|
(2) Non-current liabilities: |
|
|
|
|
(a) Long-term borrowings:
|
Bank Loan Debenture |
|
xxxxx xxxxx |
|
(b) Differed tax liabilities |
|
|
|
|
(c) Long-term provisions |
|
|
|
|
Total liabilities |
|
xxxxx |
|
|
(II) ASSETS |
|
|
|
(1) Non-Current Assets |
|
|
|
(a) Fixed asset: |
|
|
|
(i) Tangible assets |
|
|
|
(ii) Intangible assets (Debenture suspense) |
|
xxxxx |
|
|
|
|
|
(2) Current Assets |
|
|
|
(a) Inventories (closing stock) |
|
|
|
(b) Trade receivables |
|
|
|
(c) Cash and bank balance |
|
xxxxx |
|
Total assets |
|
xxxxxx |
|
#####
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 8
ABC Company Ltd taken 9% loan from NB Bank for Rs 50,00,000 by issuing 70,000; 7% debentures of Rs 100 each as collateral security.
Required: Journal entry and balance sheet
Solution:
Journal Entries
In the book of ABC Company Ltd
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
Due |
Loan taken |
|
|
|
|
|
Bank account To 9% Bank loan account (Being- loan taken from bank) |
Dr
|
|
50,00,000 |
50,00,000 |
Received |
Debentures issued for collateral security |
|
|
|
|
|
Debentures suspense account To Debentures account (Being- 70,000; 7% debentures of Rs 100 each issued as collateral security for bank loan) |
Dr
|
|
70,00,000 |
70,00,000 |
Balance Sheet
ABC Company Ltd
Liabilities + capital + profit |
Amount |
Assets |
Amount |
9% Bank loan 7% Debentures (70,000; 7% debentures of Rs100 each issued as collateral security) |
50,00,000 70,00,000
|
Bank balance Debentures suspense |
50,00,000 70,00,000 |
1,20,00,000 |
1,20,00,000 |
Or
Extracted Balance sheet
Particulars |
Note No. |
As on 31 Mar CY |
As on 31 Mar LY |
|
(I) EQUITY AND LIABILITIES |
|
|
|
|
(2) Non-current liabilities: |
|
|
|
|
(a) Long-term borrowings:
|
Bank Loan 7% Debenture |
|
50,00,000 70,00,000 |
|
(b) Differed tax liabilities |
|
|
|
|
(c) Long-term provisions |
|
|
|
|
Total liabilities |
|
xxxxx |
|
|
(II) ASSETS |
|
|
|
(1) Non-Current Assets |
|
|
|
(a) Fixed asset: |
|
|
|
(i) Tangible assets |
|
|
|
(ii) Intangible assets (Debenture suspense) |
|
70,00,000 |
|
|
|
|
|
(2) Current Assets |
|
|
|
(a) Inventories (closing stock) |
|
|
|
(b) Trade receivables |
|
|
|
(c) Cash and bank balance |
|
50,00,000 |
|
Total assets |
|
xxxxxx |
|
#####
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SHARE (ACCOUNTING FOR SHARE) http://tiny.cc/889jkz
SHARE IN Nepali http://tiny.cc/k99jkz
DEBENTURES http://tiny.cc/yeakkz
FINAL ACCOUNT: CLASS 12 http://tiny.cc/e89jkz
FINAL ACCOUNT IN NEPALI http://tiny.cc/w89jkz
WORK SHEET http://tiny.cc/579jkz
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#####
PROBLEMS AND ANSWERS |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
AP: 7 [collateral security]
Mechi Tea Company Limited borrowed loan of Rs 1,00,00,000 from Nabil Bank Ltd by issuing 100,000; 8% debentures of Rs 100 each as collateral security against the loan.
Required: Journal entry and balance sheet
***********
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