320EL26 - MODULE 5 Issue of Debentures Accounting for...

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ACCOUNTANCY MODULE - 5 Notes Accounting for Shares and Debentures 312 You have learnt that share capital is the main source of finance of a joint stock company. Such capital is raised by issuing shares. Those who hold the shares of the company are called the shareholders and are owners of the company. Company may need additional amount of money for a long period. It cannot issue shares every time. It can raise loan from the public. The amount of loan can be divided into units of small denominations and the company can sell them to the public. Each unit is called a ‘debenture’ and holder of such units is called Debenture holder. The amount so raised is loan for the company. In this lesson we shall learn about issue of debentures and its accounting treatment. OBJECTIVES After studying this lesson you will be able to : state the meaning and types of debentures; explain the procedure of issue of debentures and its accounting treatment; explain issue of debentures as collateral security; explain ‘writing off discount’ and ‘loss on issue debentures’ and their accounting treatment in the books of the company; calculate interest on debentures. 26.1 DEBENTURE AND ITS TYPES A Debenture is a unit of loan amount. When a company intends to raise the loan amount from the public it issues debentures. A person holding debenture or debentures is called a debenture holder. A debenture is a 26 ISSUE OF DEBENTURES
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MODULE - 5 Accounting for Shares and Debentures Notes 313 Issue of Debentures ACCOUNTANCY document issued under the seal of the company. It is an acknowledgment of the loan received by the company equal to the nominal value of the debenture. It bears the date of redemption and rate and mode of payment of interest. A debenture holder is the creditor of the company. As per section 2(12) of Companies Act 1956, “Debenture includes debenture stock, bond and any other securities of the company whether constituting a charge on the company’s assets or not”. Types of debentures Debenture can be classified as under : 1. From security point of view (i) Secured or Mortgage debentures : These are the debentures that are secured by a charge on the assets of the company. These are also called mortgage debentures. The holders of secured debentures have the right to recover their principal amount with the unpaid amount of interest on such debentures out of the assets mortgaged by the company. In India, debentures must be secured. Secured debentures can be of two types : (a) First mortgage debentures : The holders of such debentures have a first claim on the assets charged. (b) Second mortgage debentures : The holders of such debentures have a second claim on the assets charged. (ii) Unsecured debentures : Debentures which do not carry any security with regard to the principal amount or unpaid interest are called unsecured debentures. These are called simple debentures.
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  • Spring '14
  • Guymon
  • Balance Sheet, Secured loan, Debenture, debentures, a/c

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