Accounting for Debentures Test - 12

Debenture holders do not have dividend right. They can’t claim for dividend because dividend is only for the shareholders. Debenture holders get a fixed interest annually.

Amount Received on Allotment Rs.42,00,000 i.e. 7,000 × 600 = 42,00,000

At the time of liquidation the payment to debenture holders is made on the priority bases and then to the shareholders.

Nonconvertible debentures are those which cannot be converted into shares. These debentures are entitled for interest and can be redeemed normally at the time of maturity.

When a company purchased assets form an outsider and payment is not made in cash and it is settled by issue of debentures in such a case Vendor’s Account is to be credited.

Debentures can be shown as long term borrowings, short term borrowings and other current liabilities, under different situations but cannot be shown as Shareholders Funds.

Debentures issued are shown under the heading of Non-current liabilities and sub-heading Long Term Borrowings.

When a company purchases some assets and issues debentures as a payment for the purchase, to the vendors it is known as issue of debentures for consideration other than cash.

Premium on Redemption of Debentures Account is a personal account. It is shown in the balance sheet (as premium due i.e. liability). Premium payable on redemption is treated as a loss and should be written off against the Statement of P/L.

Debentures are external equity i.e. outsiders liability. Capital contributed by the shareholders is called internal equity but amount contributed by the debenture holders is called external equity.