Accounting for Debentures

Issue of Debentures
 Issuing debentures means issue of a certificate by the company under
its seal which is an acknowledgment of debt taken by the company.
 The procedure of issue of debentures by a company is similar to that
of the issue of shares.
 A Prospectus is issued, applications are invited, and letters of
allotment are issued.
 On rejection of applications, application money is refunded. In case
of partial allotment, excess application money may be adjusted
towards subsequent calls.
 Issue of Debenture takes various forms which are as under :
1. Debentures issued for cash
2. Debentures issued for consideration other than cash
3. Debentures issued as collateral security.
Further, debentures may be issued

at par,
at premium, and
at discount
Accounting for Debentures
Illustration: 1

Delight India private Limited issued 10,000 8%

Debentures of ₹ 100 each payable as follows
₹ 30 on Application
₹ 30 on Allotment
₹ 40 on First and Final call
All the debentures were applied for and allotted. All
the calls were duly received. Make necessary journal
entries in the books of the company.
L.F. Debit Amount (₹) Credit Amount (₹)

3,00,000
3,00,000

3,00,000
3,00,000

3,00,000
3,00,000

3,00,000
3,00,000

400,000
4,00,000

4,00,000
4,00,000
Over Subscription
As the name suggests, this is a situation where a
company receives more applications as compare to
debentures offered.
For instance, company invited applications for 10,000
debentures of ₹ 100 each. In response to its
advertisement, 25,000 applications received.
This situation is called over subscription. There can be
following treatment of the excess application money
received :
 Delhi Cloth Mills Ltd. issued 10,000 10% Debentures
Illustration 2
of ₹ 100 each payable as ₹ 50 on application and ₹ 50
on allotment. Applications were received for 12,000
debentures. Applicants for 1000 debentures were sent
letter of regret and money was returned. Allotment was
made proportionately to the remaining applicants.
Over subscription was applied to the amount due on
allotment. All money was duly received. You are asked
to make journal entries for the above transactions in
the books of the company.
L.F. Debit Amount (₹) Credit Amount
( ₹)

4,80,000
4,80,000

4,80,000
4,00,000
40,000
40,000

6,00,000

6,00,000

5,80,000

580,000
 ISSUE OF DEBENTURES AT PREMIUM AND AT DISCOUNT
Debentures are said to be issued at premium when these are issued at a value
which is more than their nominal value. For example, a debenture of ₹ 100 is
issued at ₹ 120. This excess amount of ₹ 20 is the amount of premium. As per
section 78 of the Companies Act, 1956, the premium on the issue of debentures
is credited to the Securities Premium A/c. And the journal entry in case of
debentures issued at premium will be:

Date Particulars L.F. Debit Credi

Amoun t
t (₹) Amou
nt (₹)
Debentures Allotment A/c Dr
To Debentures Account
To Securities Premium A/c
(Amount due on allotment along with premium of
₹ ....)