Page 49 - IC26 LIFE INSURANCE FINANCE

UNIT 4: ISSUE OF DEBENTURES

Meaning : A debenture is a bond issued by a company under its seal, acknowledging a debt and
containing regards repayment of the principal and interest.

Issue of Debentures : There are 6 different cases in issue of debentures. Journal entries in each of the
discussed below :

(i) Debenture issued at par, redeemable at par
Bank A/c Dr
To % Debenture A/c

(ii) Debenture issued at premium and redeemable at par or at discount
Bank A/c Dr.
To % Debenture A/c
To Securities Premium A/c

(iii) Debenture issued at Discount and Redeemable at par or at discount

Bank A/c Dr.
Discount on issue of Debenture A/c Dr.
To % Debentures A/c

The difference between the issue price and par value is considered as loss on issue on debentures and is
written off over the life of debentures.

(iv) Debentures issued at par and redeemable at a premium
Bank A/c Dr.
Loss on issue of Debenture A/c Dr.
To % Debenture A/c
To Debenture redemption premium A/c

(v) Debenture issued at discount and redeemable at premium
Bank A/c Dr.
Discount/loss on issue of Debenture A/c Dr.
To... % Debenture A/c
To Debenture redemption premium A/c,

In this case, the difference between the redemption price and the issue price is treated as discount/loss
on issue of debentures.

(vi) Debenture Issued at premium and redeemable at Premium
Bank A/c Dr
Loss on issue of Debenture, A/c Dr
To... % Debenture A/c
To Debenture Premium A/c
To Debenture redemption A/c

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