Accounts Notes: ISSUE OF DEBENTURES

Thursday, 14 April 2011

ISSUE OF DEBENTURES

ISSUE OF DEBENTURES

By issuing debentures means issue of a certificate by the company under its seal which is an acknowledgment of debt taken by the company.

The procedure of issue of debentures by a company is similar to that of the issue of shares. A Prospectus is issued, applications are invited, and letters of allotment are issued. On rejection of applications, application money is refunded. In case of partial allotment, excess application money may be adjusted towards subsequent calls.

Issue of Debenture takes various forms which are as under :

1. Debentures issued for cash

2. Debentures issued for consideration other than cash

3. Debentures issued as collateral security. Further, debentures may be issued
(i) at par, (ii) at premium, and (iii) at discount

Accounting treatment of issue of debentures for cash

1. Debentures issued for cash at par : Following journal entries will be made : (i) Application money is received
Bank A/c Dr

To Debentures Application A/c

(Application money received for Debentures)
(ii) Transfer of debentures application money to debentures account on their allotment

Debentures Application A/c Dr

To Debentures A/c

(Application money transferred to debenture account on allotment)

(iii) Money due on allotment

Debentures Allotment A/c Dr

To Debentures A/c

(Allotment money made due)

(iv) Money due on allotment is received

Bank A/c Dr

To Debentures Allotment A/c

(Receipt of Debenture allotment money)

(v) First and final call is made

Debentures First and Final call A/c Dr

To Debentures A/c

(First and Final call money made due on ............... debentures)

(vi) Debentures First and Final call money is received

Bank A/c Dr
To Debentures First and Final call A/c
(Receipt of Amount due on call)
Note : Two calls i.e. first call and second call may be made
Journal entries will be made on the lines made for first and final call.