Accounting for Debentures Test - 14

Discount on issue of debentures is treated as a fictitious asset and should be written off against the Statement of Profit and Loss. As it shows Debit Balance.

Following journal entry will be recorded for the issue of debentures:

Bank A/c Dr. 1,10,000

To 12% Debentures App. & Allot. A/c 1,10,000

Note: In this first entry there is no need to show premium separately Premium will be showed in Transfer entry.

Shareholders get dividend but debenture holders get Interested. dividend is paid only when there is some profit in the business but interest on debentures is paid irrespective of losses.

The amount of discount which is unamortized or not written off yet is shown in the balance sheet under the heading Non-current Assets and sub heading other non-current assets.

A debenture is a document issued by a company as evidence of a debt to the holder usually arising out of a loan and most commonly secured by a charge. A company issue its debentures under the Common Seal of the company.

A sole proprietor firm cannot issue debentures. Only those firms which are registered under the Companies Act, 2013 or before can issue debentures with the permission of SEBI.

A company issue its debentures as collateral security when lender demands for the additional security in addition to the prime or principal security.

Securities Premium received is a capital profit for a firm which is shown in the balance sheet under the heading

There are different types of debentures except Equity Debentures.

(i) Redeemable Debentures

(ii) Perpetual Debentures

(iii) Convertible Debentures

(iv) Coupon Rate Debentures

When a company receives less applications for the debentures than the actual debentures offered for the subscription, it is known as under subscription.