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    Debentures

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    9463684355

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    Debentures

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    9463684355
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    Original Title

    Debentures (2)

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    15 views22 pages

    Debentures

    Uploaded by

    9463684355

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
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    DEBENTURES

    Meaning Of Debenture
    • “Debentures includes debenture stock, bonds and
    any other securities of the company whether
    constituting a charge on the company’s assets or
    not.” ( Section 2(12) of the Companies Act, 1956
    • “A debenture is a document given by a company as
    evidence of a debt to the holder usually arising out
    of a loan and mostly commonly secured by a charge.”
    (Topham)
    • “A debenture is an instrument acknowledging a debt
    issued under the common seal of the company.”
    Features
    • A Debenture is a document or certificate which
    acknowledges the debt of a company.
    • Mode and period of payment of principal and
    interest is fixed.
    • Rate of interest on debentures is fixed.
    • It is considered as external equity or long-term
    borrowing of the company.
    DISTINCTION BETWEEN A SHARE AND A DEBENTURE

    Bases of Difference Share Debenture


    Ownership A share represents a A debenture
    part of the capital. represents a part of
    Hence a shareholder debt of a company.
    is the owner. Therefore, a
    debenture holder is a
    creditor.

    Return A shareholder gets a A debenture holder


    dividend on gets interest on his
    investment. As a investment at the
    matter of fact, stated rate whether
    he/she cannot get or not there are
    dividend if the profits to the
    company suffers company.
    losses.
    Bases of Difference Share Debenture
    Repayment Normally, the Debentures are
    amount of share is issued for a definite
    not returned period. Hence, the
    during the life of amount of
    the company. debentures is
    returned after that
    time.
    Issue on Discount There are legal There are no
    restriction to be restriction on issue
    fulfilled to issue of debentures at a
    share at a discount. discount.
    Mortgage There can be no There can be
    mortgage shares. mortgage
    debentures.
    TYPES OF DEBENTURES
    1. From Security Point of View
    • Mortgage or Secured Debentures are those
    debentures which are secured by either a fixed
    charge or floating charge. A regular Mortgage
    Deed or Trust Deed is entered into between
    the company and the representatives (called
    Trustees) of the debenture holder.
    • Unsecured Debenture are those debentures
    that have no security.
    TYPES OF DEBENTURES
    2. From Redemption Point of View
    • Redeemable Debenture are those that will be
    repaid by the company at the end of a
    specified period or by installments during the
    existence of the company.
    • Irredeemable Debentures are those that are
    not repayable during the life of the company
    and hence will be repaid only when the
    company goes into liquidation.
    TYPES OF DEBENTURES
    3. From Convertibility Point of View
    • Convertible Debenture are those debentures, the holder of
    which are given an option of exchange, the whole or part of
    the account of their debentures for shares, after a specified
    period. Where only a part of the debenture amount is
    convertible into equity shares, such debentures are known
    as ‘Partly Convertible Debenture’. When full amount of
    debentures is convertible into equity shares, such
    debentures are known as ‘Fully Convertible Debenture’.
    • Non-Convertible Debenture are those the holders of which
    have no right to convert them into equity shares.
    ISSUE OF DEBENTURES FOR CASH
    On Receipt of Applications Bank A/c Dr.
    To Debenture application A/c

    On Acceptance of Applications Debenture application A/c Dr.


    To Debenture A/c
    On Making Allotment Money Debenture Allotment A/c Dr.
    Due To Debenture A/c
    On Adjustment of Excess Debenture application A/c Dr.
    Debenture Application Money To Debenture Allotment A/c

    On Refund of Excess Debenture application A/c Dr.


    Debenture Application Money To Bank A/c

    On Receipt of Allotment Bank A/c Dr.


    Money To Debenture Allotment A/c

    On Making Calls Debenture Call A/c Dr.


    To Debenture A/c
    On Receipt of Call Money Bank A/c Dr.
    To Debenture Call A/c
    Issued at Par(Face Value)
    When debentures are issued at par the, the issue
    price is equal to par value, or the face value.

    (a) Bank A/c …Dr.


    To Debenture Application A/c
    (for receipt of appl. Money)

    (b) Debenture Application A/c …Dr.


    To Debentures A/c
    (transfer of appl. Money)
    Issued at Premium
    • When debenture is issued at premium the issue
    price is more than the face value, and premium is
    transferred to Sec. Prem. A/c.

    (a) Bank A/c …Dr.


    To Debenture Application A/c
    (for receipt of appl. Money)

    b) Debenture Application A/c ….Dr.


    To ….% Debentures A/c
    To Sec. Prem. A/c
    Issued at Discount
    • In this situation the issue price is less than the par
    value. Difference between the issue price and
    redemption price is treated as discount/loss on
    issue.

    a) Bank A/c …Dr.


    To Debenture Application A/c
    (for receipt of appl. Money)

    b) Debenture Application A/c …Dr.


    Discount On Issue Of Debenture A/c …Dr.
    To Debentures A/c
    ISSUE OF DEBENTURES FOR CONSIDERATION
    OTHER THAN CASH
    Debentures can also be issued to vendors against purchase of assets.
    Sometimes, a company purchases assets from the vendor and issues
    debentures in payment of purchase consideration.

    (1) Assets A/c …Dr.


    To Vendor
    (Entry for the purchase of sundry assets, with the amount of )
    Purchase consideration)

    (2) Vendor …Dr.


    To Debenture A/c

    (Entry for the issue of debentures in satisfaction of purchase consideration)


    REDEMPTION OF DEBENTURES
    Case No. Conditions of Issue Conditions of
    Redemption

    1 Issued at Par Redeemable at Par


    2 Issued at Discount Redeemable at Par
    3 Issued at premium Redeemable at Par
    4 Issued at Par Redeemable at
    Premium
    5 Issued at Discount Redeemable at
    Premium
    6 Issued at premium Redeemable at
    Premium
    1 Case
    st

    (1) When debenture are issued at par and are


    redeemable at par.

    (a) Bank A/c …Dr.


    To Debenture Application A/c

    (b) Debenture Application A/c …Dr.


    To Debentures A/c
    2 Case
    nd

    (2) When debentures are issued at a discount but


    are redeemable at par.

    (a) Bank A/c …Dr.


    To Debenture Application A/c

    (b) Debenture Application A/c …Dr.


    Discount on issue of Debenture A/c ...Dr.
    To Debenture A/c
    3 Case
    rd

    (3) When debentures are issued at a premium but


    are redeemable at par.

    (a) Bank A/c …Dr.


    To Debenture Application A/c

    (b) Debenture Application A/c …Dr.


    To Debentures A/c
    To Securities Premium A/c
    4 Case
    th

    (4) When debentures are issued at a par but are


    redeemable at premium.

    (a) Bank A/c …Dr.


    To Debenture Application A/c

    (b) Debenture Application A/c …Dr.


    Loss on issue of Debenture A/c …Dr.
    To Debenture A/c
    To Premium on Redemption of Debenture A/c
    5 Case
    th

    (5) When debentures are issued at Discount but are redeemable at


    premium.

    (a) Bank A/c …Dr.


    To Debenture Application A/c

    (b) Debenture Application A/c …Dr.


    Discount on issue of debenture A/c …Dr.
    To Debenture A/c

    (c) Loss on issue of debenture A/c …Dr.


    To Premium on Redemption of debenture A/c
    INTEREST ON DEBENTURES
    Interest Journal entry

    When Interest is due Debentures’ Interest A/c Dr.


    To Debenture holder A/c
    To Income Tax payable A/c

    When Interest is paid Debenture holder A/c Dr.


    To Bank/Cash A/c

    On Payment of Income Tax to Income Tax Payable A/c Dr.


    Government. To Bank A/c

    On Transfer of interest on Profit and Loss A/c Dr.


    debentures to Profit and Loss To Debenture Interest A/c
    Account
    WRITING OFF OF DISCOUNT AND LOSS ON
    ISSUE OF DEBENTURES
    The discount on the issue of debentures or any loss
    (when the amount received is less than the amount
    to be redeemed) is a fictitious asset. It is shown on
    the asset side of the Balance Sheet. But it should be
    written off as soon as possible against the capital
    profit (Securities premium) or by debiting the Profit
    and Loss Account.

    Profit and Loss A/c …Dr.


    To Discount on issue of Debentures A/c
    Thank You
    Made By:-
    Naman Vij
    Manoj Kumar
    Swati Garg
    Vipul Jha

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