Page 141 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes 6.4 Distinction between Debentures and Debenture Stock

There are three main differences between debentures and debentures stock.
1. Debenture stock are always fully paid while debentures can be partly paid up.

2. Debentures stock can be transferred in friction while debentures are transferred wholly.
3. Debentures stock are not allotted any serial number while debentures are allotted a serial
number.

Stages of Debentures

There are the following three main stages of accounting for debentures:

1. Accounting at the time of issue of debentures.
2. Accounting at the time of making a provision for redemption of debentures.
3. Accounting at the time of redemption of debentures.

Note Shares are not secured, while the debenture can be secured or mortgaged (i.e.
secured by assets).

6.5 Issue of Debentures

The procedure for issue of debentures is exactly similar to the procedure of issue of shares. The
company prepares a prospectus and issues it in the market; applications for debentures are
invited along-with some application money. After scrutiny, letters of allotment are issued and
so on. The only difference is that the names of accounts are changed and the rate of interest is
prefixed to debentures. For instance, if rate of interest is 10%, the name given will be 10%
Debenture. Debentures may also be issued at par, at premium or at discount similar to shares.

Accounting Treatment

Accounting treatment for the issue of debentures maybe understood properly from the following
points of view:
(I) Consideration
(II) Conditions for redemption

Consideration

Debentures maybe issued in the following ways:
1. Issue of debenture for cash.
2. Issue of debenture other than cash.
3. Issue of debenture as collateral security.

Issue of debentures for cash
When debentures are issued for cash, the amount of debenture maybe collected in different
instalments or in lump sum and the issue of debentures maybe at par, at premium, or at discount.

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