Issue of Debentures

Journal entries for the issue of debentures are done in the same manner as that for the issue of shares.

1. If whole amount is received on application.

No. Transaction Journal Entry Amount
1. When application money is received. Bank a/c                  Dr.

To Deb. App. & Allot. A/c

 Total issue price received on application.
2. At the time of allotment. Deb. App. & Allot. A/c      Dr.

Disc.on Issue of Debs.A/c  Dr.*       To Debentures A/c

To Securities Premium A/c*

 Total money received.

Amount of Discount*

Face Value of Debs.

Securities Premium*

* As the case may be.

2.  If the amount is received in two installments.

No. Transaction Journal Entry Amount
1. When application money is received. Bank A/c                 Dr.

To Deb. Application A/c

 Amount received on application.
2. At the time of allotment. Deb. Application A/c     Dr.

To Debentures A/c

 Amount received transferred to Debentures Account.
3. For making the allotment money due. Deb. Allotment A/c       Dr.

To Debentures A/c

 Amount due on allotment.
4. On receiving the allotment money. Bank A/c                   Dr.

To Deb. Allotment A/c

 Actual allotment money received.

Note: In normal cases of Debentures, the journal entries to be passed are same as in case of issue of shares, so these have been skipped.

Issue of Debentures for Consideration other than Cash

  1. When company purchases assets

When company purchases assets and makes the payment to the vendor, in the form of fully paid Debentures of the company, this is said to be a case of Issue of Debentures for Consideration other than Cash. These Debentures can also be issued either at par, at premium or at discount, and the number of Debentures to be issued will depend upon the price at which the Debentures are issued and the amount payable to the vendor.

No. of Debs. to be issued to the vendor = Amount Payable/ Issue Price per Debentures.

Issue Price per Debentures = Face Value + Premium (-Discount).

Journal Entries to be passed in this case can be shown as:

No. Transaction Journal Entry Amount
1. When assets are purchased. Assets A/c                   Dr.

To Vendor

 Purchase price of assets.
2. Issue of Debentures to the vendor. Vendor A/c                  Dr.

Disc. on the Issue of Debs. Dr.*

To Debentures A/c

To Sec.Prem.Reserve A/c*

 Purchase Price.

Discount.

Debentures. Premium.

2. If the whole business is being taken over

If the whole business is being taken over and the amount of debentures issued is more than the amount of the net assets taken over, the excess will be treated as value of goodwill and will be debited while passing the journal entry for the purchase of business and credited to Capital Reserve in case of the value of debentures issued being less than the value of the net assets taken over.

Journal Entries in case of Debentures issued to the vendor for purchase of business can be shown as:

No. Transaction Journal Entry Amount
1. Purchase of business. Sundry Assets A/c          Dr.

Goodwill A/c                   Dr.*

To Sundry Liabilities A/c

To Vendor A/c

To Capital Reserve A/c*

 Assets shown separately.

Balancing figure.

Liabilities shown separately

Purchase price.

Balancing figure.
2. Issue of Debentures to the vendor. Vendor A/c                 Dr.

Disc. on Issue of Debs.    Dr.*

To Debentures A/c

To Sec. Prem. Reserve*

 Purchase Price.

Discount.

Debentures.

Premium.

Debentures – Meaning and Types

Terms of Issue of Debentures