Page 150 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 6: Debentures: Concept, Types, Issue

Self Assessment Notes

Fill in the blanks:
6. A 10% debenture of nominal value of 100 has been issued at 90 is said to be issued at
…………… .

7. A 9% debenture of a nominal value of 100 has been issued at 120 debentures are said to
be issued at …………… .
8. 100 8% debentures of 100 each has been issued to vendors for plant purchased the
debentures are said to be issued …………… .
9. A company can issue its debentures at a discount if a provision in this regard has been
made in its ...........................
10. If there is no provision regarding the interest in calls-in-arrear on debentures, interest is
not calculated on …………… .
6.7 Issue of Debentures for Consideration Other Than Cash

When a company purchases some assets or services of another company, it has to pay purchase
consideration, which can be paid by many methods. If it paid by issue of fully paid debentures
such issue of debentures is said issue of debentures for consideration other than cash.
These debentures can be issued to the vender at par, at premium or at a discount. In this case
following journal entries are passed:
1. On purchase of assets/business:
Sundry Assets Account Dr.
*Goodwill Account Dr
To Sundry Liabilities Account
To Vendors’ Account
**To Capital Reserve Account

*If the value of net assets acquired is less than the value of debentures issued, the difference
(value of debentures-net assets acquired) will be goodwill and will be debited.
**If the value of net assets acquired is more than the value of debentures issued, the
difference will be treated as Capital Reserve and will be credited.

2. When debentures are allotted in lieu of purchase consideration:
(i) If the debentures are issued at par to the vendor:
Vendors Account Dr
To Debentures Account
(ii) If the Debentures are issued at premium to vendor:
Vendors’ Account Dr.
To Debentures Account

To Debentures Premium Account

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