Accounting for Debentures Test - 4

(i) Security debentures are those which are secured by a fixed charge.

(ii) Priority Debentures are repaid before the other debentures.

(iii) Convertible debentures are those which can be converted into shares.

Debenture Allotment Account is a personal account. It is a Representative Personal Account.

Debentures are generally secured by a charge on assets. It shows that debentures are not issued for cash or kind but have been issued as a security for the loan obtained.

Debenture holders are the creditors of a company because they are paid first at the time liquidation. Their payment (Principal amount and interest) is fixed, which has to be paid either firm is in profit or loss.

Debenture Application Account is a personal account. It is Representative Personal Account.

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.

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.

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

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.

A Debenture is acknowledgment of debt and a contract for the repayment of principal amount with interest. Interest paid on debentures is a fixed charge and will be paid whether firm is in profit or loss.

In a company only those people are shareholder can vote but debenture holders are not allowed to vote. The simple reason is debenture holders are treated as outsiders and shareholders are treated as insiders.

A company can issue its Debentures at par, premium and discount. But shares cannot be issued at discount.

Debentures are safe in comparison of shares. Debentures are almost risk free because most of the time they are secured by a charge on the assets of the company.

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.

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.

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.

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