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Issue and Redemption of Debenture
Debenture: It is a document acknowledging a debt against company which is issued by the company under common seal of the company and contracting to pay principal along with interest up to a specified time. As per Section 2(12) of the Companies Act, 1956: Debenture include debenture stock, bonds and any other securities of the company whether constituting a charge on the companys assets or not. Types of Debenture: (1) Secured Debenture: Debenture secured against fixed charged or floating charge. (2) Unsecured Debenture: Debenture which have no security. (3) Redeemable Debenture: Debenture which is repaid after a specified period or by installment during the existence of the company. (4) Irredeemable Debenture: Debenture which is not repayable during life time of the company i.e. repayable only at the time of liquidation. (5) Registered Debenture: When name, address and particulars of debenture holder are entered in a register kept by the company is known as registered debenture. (6) Bearer Debenture: When debenture are transferable only by delivery. The company keeps no record of such debenture holders. (7) First Debenture: Debenture which repaid on priority than other is known as First Debenture. (8) Second Debenture: Debenture which repaid after the First Debenture is known as Second Debenture. (9) Zero Coupon Rate Debentures: Debenture which do not carry Coupon Rate is known as Zero Coupon Rate Debenture. In this company issue debenture on a heavy discount. The difference between the redeemable value and issued value is known as interest on debenture. (10) Convertible Debenture: When debenture holders are given an option to convert their holding into Debenture in part or as a whole after a specified time is known as Convertible Debenture.
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Journal Entries at the time of Issue of Debenture:
(I) (i) When Debenture are issue for Other than Cash: Debentures are issued for purchasing of Assets: Transaction and Journal Entries Assets A/c To Vendor A/c At Par Vendor A/c Dr. To Debenture A/c At Premium Vendor A/c Dr. To Debenture A/c To Sec. Pre. A/c
For Purchasing Assets
Dr.
For Issue of Debenture
At Discount Vendor A/c Dr. Dis. on Issue of Deb. A/c Dr. To Debenture A/c
(ii)
Debenture are issued for purchasing Business: Transaction and Journal Entries Assets A/c G/w A/c (bal. fig.) To Vendor A/c To Liabilities A/c To C.R. (bal. fig.) At Par Vendor A/c Dr. To Debenture A/c At Premium Vendor A/c Dr. To Debenture A/c To Sec. Pre. A/c
For Purchasing Business
Dr. Dr.
For Issue of Debenture
At Discount Vendor A/c Dr. Dis. on Issue of Deb. A/c Dr. To Debenture A/c
(II) (i)
When Debenture are issue for Cash: Debenture Payable in Lump Sum: Transaction and Journal Entries Bank A/c To Deb. App. A/c At Par Deb. App. A/c Dr. To Debenture A/c At Premium Deb. App. A/c Dr. To Debenture A/c To Sec. Pre. A/c
Receiving Deb. App. money
Dr.
For transferring Deb. App. money to Debenture A/c
At Discount Deb. App. A/c Dr. Dis. on Issue of Deb. A/c Dr. To Debenture A/c
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(ii)
Debenture Payable in Installment: Bank A/c To Deb. App. A/c Deb. App. A/c To Debenture A/c Dr.
Receiving Deb. App. Money For transferring Deb. App. money to Debenture A/c For Amount due on allotment
Dr.
Deb. All. A/c Dr. To Deb. A/c (At Par)
Deb. All. A/c Dr. To Deb. A/c To Pre. A/c (At Pre.) Dr.
Deb. All. A/c Dis. on Deb. A/c To Deb. A/c (At Dis.)
Dr. Dr.
For receiving amount due on allotment For Amount due on Ist & final call For receiving amount due on Ist & final call
Bank A/c To Deb. All. A/c
Debenture Ist & final call A/c To Debenture A/c Bank A/c Debenture Ist & final call A/c
Dr.
Dr.
(III) S. No. 1. 2. 3. 4. 5. 6.
Issue of Debenture with terms of Redemption: Condition of Issue Issue at Par Issue at Premium Issue at Discount Issue at Par Issue at Premium Issue at Discount Condition of Redemption Redemption at Par Redemption at Par Redemption at Par Redemption at Premium Redemption at Premium Redemption at Premium
Journal Entry For Issue of Debenture with terms of Redemption: S. No. 1. Transaction Issue at Par & Redemption at Par Bank A/c To Deb. App. A/c Deb. App. A/c To Debenture A/c Dr. Dr. Cr.
Dr.
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2.
Issue at Premium & Redemption at Par Bank A/c To Deb. App. A/c Deb. App. A/c To Debenture A/c To Sec. Pre. A/c
Dr.
Dr.
3.
Issue at Discount & Redemption at Par Bank A/c To Deb. App. A/c Deb. App. A/c Dis. on Issue of Deb. A/c To Debenture A/c
Dr.
Dr. Dr.
4.
Issue at Par & Redemption at Premium Bank A/c To Deb. App. A/c Deb. App. A/c Loss on Issue of Debenture A/c To Debenture A/c To Premium on Redemption of Debenture A/c
Dr.
Dr. Dr.
5.
Issue at Premium & Redemption at Premium Bank A/c To Deb. App. A/c Deb. App. A/c Loss on Issue of Debenture A/c To Debenture A/c To Sec. Pre. A/c To Premium on Redemption of Debenture A/c
Dr.
Dr. Dr.
6.
Issue at Discount & Redemption at Premium Bank A/c To Deb. App. A/c Deb. App. A/c Dis. on Issue of Deb. A/c Loss on Issue of Debenture A/c To Debenture A/c To Premium on Redemption of Debenture A/c
Dr.
Dr. Dr. Dr.
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Sources of Redemption of Debenture
Fresh Capital
Sale of Assets
Utilise the Profit
Surplus Fund
Method of Redemption of Debenture: 1. 2. 3. 4. Lump Sum Payment Method; Draw of Lots Method; Purchase in the Open Market Method; Conversion Method.
Lump Sum Payment Method Transaction At Par At Premium
Debenture A/c Dr. Pre. on Red. of Deb. A/c Dr. To Deb. Holders A/c Dr.
At Discount
Debenture A/ c Dr. To Deb. Holders A/c To Profit on Red. of Deb. A/c
Amount due to Debenture A/c Dr. Debentureholders To Deb. Holders A/c
Amount Paid to Debentureholders
Deb. Holders A/c To Bank A/c
Redemption of debenture out of capital and out of profit
(1) Redemption of Debenture out of Capital Redemption of debenture out of capital means redeeming of debenture by issue of fresh capital. This method is used when there is no surplus profit available for redemption of debenture. (2) Redemption of Debenture out of Profit Redemption of debenture out of profit means redeeming of debenture by transferring of profit from P&L App. A/c to Debenture Redemption Reserve A/c (DRR A/c). As per SEBI guidelines, an amount equal to 50% of the debenture should be transferred to DRR. Journal Entries for Redemption of Debenture out of Profit
S. No.
1.
Transaction
For creating DRR P&L App. A/c To DRR A/c Dr.
Dr.
Cr.
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2.
For Amount due to Debentureholders i At Par Debenture A/c To Deb. Holders A/c ii At Premium Debenture A/c Pre. on Red. of Deb. A/c To Deb. Holders A/c iii At Discount Debenture A/ c To Deb. Holders A/c To Profit on Red. of Deb. A/c
Dr.
Dr. Dr.
Dr.
3.
For Payment of Amount to Debentureholders Deb. Holders A/c To Bank A/c
Dr.
Purchase in the Open Market
S. No. Transaction Dr. Cr.
1.
Purchased in the open market for immediate cancellation
i for purchasing of debenture Own Debenture A/c To Bank A/c ii for cancellation of debenture x% Debenture A/c To Own Debenture A/c To Profit on Cancellation of Debenture A/c iii for profit on cancellation of debenture transfer to capital reserve Profit on Cancellation of Debenture A/c To Capital Reserve A/c Dr.
Dr.
Dr.
2.
Purchased in the open market for Investment purpose
i for purchasing of debenture Investment in Own Debenture A/c To Bank A/c Dr.
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ii for resale of debenture Bank A/c Loss on Sale of Own Debenture A/c To Investment in Own Debenture A/c To Profit on Sale of Own Debenture A/c iii for profit/loss transfer to P&L A/c For Profit: Profit on Sale of Own Debenture A/c To Profit & Loss A/c For Loss: Profit & Loss A/c To Loss on Sale of Own Debenture A/c
Dr. Dr.
Dr.
Dr.
Conversion Method Transaction At Par At Premium
x% Debenture A/c Dr. Pre. on Red. of Deb. A/c Dr. To Deb. Holders A/c Deb. Holders A/c Dr. To Shares A/c To y% Debenture A/c To Sec. Pre. A/c
At Discount
x% Debenture A/c Dr. To Deb. Holders A/c To Profit on Red. of Deb. A/c Deb. Holders A/c Dr. Dis. on issue of Sh./Deb. A/c Dr. To Shares A/c To y% Debenture A/c
Amount due to x% Debenture A/c Dr. Debentureholders To Deb. Holders A/c
Issue of Shares or Deb. Holders A/c Dr. Debenture to To Shares A/c Debentureholders To y% Debenture A/c
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