Debentures are the medium to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest. In legal terms, a debenture is nothing but a document that creates debt. It is nothing but a certificate of loan proving the fact that the company is liable to pay a specified amount with interest. The debenture holder can freely transfer the debentures. Unlike the shareholders, debenture holders do not have any voting right in the organization. Debentures issued at Par is an important part of this article.
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Issue of Debentures
There are specific steps for the complete acquisition of debentures by a person in his own name. It involves the investors applying for debentures according to the prospectus given by the company.
Sometimes, the company asks for the whole amount on application only but mostly the company does it on an instalment basis. Debentures can be issues at 3 different values which are :
1. Debentures issued at par
2.Debentures issued at a premium
3. Debenture issued at a discount
Debentures Issued at Par
When the payment received and the nominal value of the debentures are same then it is the case of ‘Issue of Debentures at Par’. In other terms, it is when the issue price is equivalent to the face value. For example, Issue of Debentures of Rs.1,000 for Rs.1,000.
There are different journal entries in connection with the issue of debentures.
1. On receipt of Application Money
| Date | Particulars | L.F. | Amount Dr. | Amount Cr. |
| Bank A/c Dr. | XXX | |||
| To Debentures Application A/c Cr. | XXX | |||
| (Receipt of the application money on debentures @Rs.__ per debenture) |
2. On allotment, transfer to Debentures A/c
| Date | Particulars | L.F. | Amount Dr. | Amount Cr. |
| Debentures Application A/c Dr. | XXX | |||
| To Debentures A/c Cr. | XXX | |||
| (Being the transfer of application money on debentures allotted to the debentures account.) |
3. Amount Due on Allotment
| Date | Particulars | L.F. | Amount Dr. | Amount Cr. |
| Debentures Allotment A/c Dr. | XXX | |||
| To Debentures A/c Cr. | XXX | |||
| (Being the allotment money due on debentures) |
4. Receipt of debenture allotment money
| Date | Particulars | L.F. | Amount Dr. | Amount Cr. |
| Bank A/c Dr. | XXX | |||
| To Debentures Allotment A/c Cr. | XXX | |||
| (Being the receipt of debenture allotment money) |
5. Amount Due On First Call
| Date | Particulars | L.F. | Amount Dr. | Amount Cr. |
| Debentures First Call A/c Dr. | XXX | |||
| To Debentures A/c Cr. | XXX | |||
| (Being the due of the first call money on ___ debentures @___) |
6. Receipt of Debentures first call money
| Date | Particulars | L.F. | Amount Dr. | Amount Cr. |
| Bank A/c Dr. | XXX | |||
| To Debentures First Call A/c Cr. | XXX | |||
| (Being the receipt of debentures 1st call amount) |
Note: If there is any second or final call then entries will be similar to the entries of the first call just with a change of name entry to second or final call as the case may be.
Question for You on Debentures Issued at Par
Alabama Ltd. issued 10,000, 10% Debentures of Rs.100 each, at par, redeemable at par after 5 years, payable Rs.70 on the application and the balance on allotment. The debentures were fully subscribed and all the money was duly received. Prepare Journal with the complete format.
Solution:
Journal
| Date | Particulars | L.F. | Amount Dr. | Amount Cr. |
| 1. | Bank A/c (10000 X 70) Dr. | 7,00,000 | ||
| To Debenture Application A/c Cr. | 7,00,000 | |||
| 2. | Debenture Application A/c Dr. | 7,00,000 | ||
| To 10% Debentures A/c Cr. | 7,00,000 | |||
| 3. | Debenture Allotment A/c Dr. | 3,00,000 | ||
| To 10% Debentures A/c Cr. | 3,00,000 | |||
| 4. | Bank A/c Dr. | 3,00,000 | ||
| To Debentures Allotment A/c Cr. | 3,00,000 |
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