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.
There are three methods for debenture issue.
Issue of debentures for cash
Issue of debentures other than cash (purchase of business).
Issue of debenture for collateral security.
1. Issue for cash |
2. Issue for business purchase |
3. Issue for collateral security |
(a) Lump sum basis (b) Installment basis |
(a) Only lump sum basis
|
(a) Only lump sum basis
|
Debentures can be issued at par, at discount or at premium.
At par mean issued at face value,
At discount mean issued less than face value,
At premium mean issued more than face value.
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
(Suppose value of one debenture is $/₹/Rs 100) |
||
Issued at par Rs 100 Issued at discount Rs 100 Issued at premium Rs 100 |
® ® ® |
Rs 100 Rs 90 Rs 110, 120 and more (no limit of premium) |
There are two methods to issue debentures for cash; (a) lump sum basis; (b) installment basis.
Under lump sum basis, company issues debentures in one installment; it may be at par, at discount or at premium.
Journal Entry
For lump sum basis
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
Bank account Discount on issue of debenture account To Debenture account To Premium on issue of deb. (security premium) (Being- ….. debenture issued of Rs … at par/discount/premium) |
Dr Dr
|
|
xxxx xxxx
|
xxxx xxxx
|
Note: In one question, either discount or premium
Simple rules are:
Received Due Due Due |
® ® ® ® |
Transfer or due Received Received Received |
Received: Bank account To Debenture application account [first time] To Debenture allotment account [second time] To Debenture first call account [third time] To Debenture second and final call account [fourth time] (Being- amount received on ………. debenture @ $ .. each)
Transfer/due/receivable: Debenture application account [first time] Debenture allotment account [second time] Debenture first call account [third time] Debenture second and final call account [fourth time] To % Debenture account (Being- amount transfer/due/receivable on ………..) |
Keep in Mind (KIM)
Shares can be issued at par, at discount or at premium Many countries cannot issue shares at discount but few countries do. |
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Under installment basis, company issues shares in installments; it may be at par, at discount or at premium.
These installments are application, allotment, first call, second and final call etc.
Journal Entries
For installment basis
Journal entries for debenture application
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
Received |
Amount received on application |
|
|
|
|
|
Bank account To Debenture application account (Being- amount received on ……. debenture @ $ .. each) |
Dr
|
|
xxxx
|
xxxx
|
Transfer |
Amount transfer of application |
|
|
|
|
|
Debenture application account To % Debenture account (Being- amount transfer of application to Debenture account) |
Dr
|
|
xxxx
|
xxxx
|
Journal entries for debenture allotment
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
Due |
Amount due/receivable on allotment |
|
|
|
|
|
Debenture allotment account To % Debenture account (Being- amount due/ receivable on allotment)
Note: lack of information, discount is debited, premium is credited with allotment) |
Dr
|
|
xxxx
|
xxxx
|
Received |
Amount received on allotment |
|
|
|
|
|
Bank account To Debenture allotment account (Being- amount received on ……. debenture @ $ .. each) |
Dr
|
|
xxxx
|
xxxx
|
Journal entries for debenture first call
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
Due |
Amount due/receivable on first call |
|
|
|
|
|
Debenture first call account To % Debenture account (Being- amount due/ receivable on first call) |
Dr
|
|
xxxx
|
xxxx
|
Received |
Amount received on first call |
|
|
|
|
|
Bank account To Debenture first call account (Being- amount received on ……. debenture @ $ .. each) |
Dr
|
|
xxxx |
xxxx |
Journal entries for debenture second and final call
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
Due |
Amount due/receivable on second and final call |
|
|
|
|
|
Debenture second and final call account To % Debenture account (Being- amount due/ receivable on second and final call) |
Dr
|
|
xxxx |
xxxx |
Received |
Amount received on second and final call |
|
|
|
|
|
Bank account To Debenture second and final call A/c (Being- amount received on ……. debenture @ $ .. each) |
Dr
|
|
xxxx |
xxx |
Note: It is basic format. In date column, no need to write down due/transfer/received etc
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