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Accounting for Companies-I Gopika Juneja, Lovely Professional University

Notes Unit 7: Debentures: Conditions of Issue of Debentures
from Redemption Point of View

CONTENTS

Objectives
Introduction
7.1 Meaning
7.2 Discount on Issue of Debentures
7.3 Loss on Issue of Debentures

7.4 Interest on Debentures
7.5 Some Points to be Noted Regarding Interest on Debentures
7.6 Summary
7.7 Keywords
7.8 Review Questions
7.9 Further Readings

Objectives

After studying this unit, you should be able to:
 Understand the discount on issue of debentures

 Explain loss on issue of debentures
 Know interest on debentures
Introduction

The issue of debentures by public limited companies is regulated by Companies Act 1956.
Debenture is a document, which either creates a debt or acknowledges it. Debentures are issued
through a prospectus. A debenture is issued by a company and is usually in the form of a
certificate, which is an acknowledgement of indebtedness. They are issued under the company’s
seal. Debentures are one of a series issued to a number of lenders. The date of repayment is
invariably specified in the debenture. Generally debentures are issued against a charge on the
assets of the company. Debentures may, however, be issued without any such charge. Debenture
holders have no right to vote in the meetings of the company.

The procedure for the issue of debentures is very much similar to that of the issue of shares.
Accounting treatment for the issue of debentures is also the same as in the case of issue of shares.
The only difference is that ‘Debenture A/C’ will be opened in place of ‘Share Capital A/C’.
Debenture account will be opened with prefix rate of interest, e.g. 10% Debentures.

!

Caution Debenture holders have no right to vote in the meetings of the company.

152 LOVELY PROFESSIONAL UNIVERSITY