Debentures Bonds And

TFCs
Introduction
 Defination
 Debenture includes debenture stock,
bonds, term finance certificates and
any other securities, other than a share
of a company whether constituting a
charge on assets of the company or not
 Types of Debnetures
 Redeemable
 Irredeemable
 Term (Mature at same time)
 Serial (Mature at several dates)
 Secured( Against the security)
 Convertible(Into shares of
company)
 Difference Between
shareholder and Debenture
Shareholder Debenture holder

Partner in the company Creditor of the company

Receive dividend on shares only if Receive fixed interest irrespective

profits are available of the fact that whether company
made profits are not
Shareholder can vote at general Debenture holder can’t vote at
meeting general meeting

At the time of winding up of the At the time of winding up rank

company rank last in the First in the repayment even if
repayment of capital unsecured.
 Why companies prefer to
Debenture issue?
If shares are If 10%
issued debentures
Profits before interest & Tax Rs.1200,000 Rs.1200,000

Less: interest on debenture ------- (250,000)

(2500,000@10%)

Earning before tax 1200,000 950,000

Less: income tax(@40%) (480,000) (380,000)

Net Income 720,000 570,000

Number of shares outstanding 60,000 35,000

Earning per share 12 16.29

 Issue of Debenture
At Par; Bank A/c Dr.
Debenture A/c Cr.

At Premium; Bank A/c Dr.

Debenture A/c Cr.
Premium on issue A/c Cr.

At Discount; Bank Account Dr.

Discount issue A/c Dr.
Debenture Account Cr.
 Issue of debenture other
than cash consideration
When agreement of purchase is signed

Business Purchase account Dr.

Vendor’s account Cr.

When assets and liabilities are incorporated

Sundry Assets Account Dr.

Sundry liabilities Account Cr.
Business Purchase Account Cr.

When purchase consideration is settled by issuing debenture:

Vendor’s Account Dr.

Debentures Account Cr.
 Issue of Debenture from
consideration of
Redemption
Issue at par & Issue at Discount & Issue at Premium &
Redeemable at Par Redeemable at Par Redeemable at Par

Issue entry: Issue entry: Issue entry:

Bank A/c Dr. Bank A/c Bank A/c
10% debenture A/c Cr. Discount on issue 10% debenture
10% debenture Premium on issue

Redemption Entry: Redemption Entry: Redemption Entry:

10% debenture A/c Dr. 10% debenture 10% debenture

Bank A/c Bank A/c Bank A/c
Cr.

Discount on issue is a fictitious asset and shown in the balance sheet

unless written off.
Issue at Par & Issue at Discount &
Redeemable at Premium Redeemable at Premium

Issue entry: Issue entry:

Bank a/c Bank Account
Loss on issue Loss on issue
10% debenture 10% Debenture a/c
Premium on redemption Premium on redemption

Redemption Entry: Redemption Entry:

10% Debenture A/c 10%Debenuture
Premium on redemption Premium on Redemption
Bank A/c Bank A/c
 Issue at Par &
Redeemable at Premium

 Suppose a company issued 1000 8%

debenture of Rs.100 each at Rs.100
but redeemable at Rs.105 after 5
years.
At time of issue At time of redemption

Bank A/c 100,000 8%debenture 100,000

Loss on issue 5000 Premium on redemption 5,000
8%debenture A/c 100,000 Bank A/c
premium on red.. 5,000 105,000
 Issue at Discount &
Redeemable at Premium

 Suppose a company issued 1000 8%

debenture of Rs.100 each at Rs.95 but
redeemable at Rs.105 after 5 years.

At time of issue At time of redemption

Bank A/c 95,000 8%debenture 100,000

Loss on issue 10,000 Premium on redemption 5,000
8%debenture A/c 100,000 Bank A/c
premium on red.. 5,000 105,000
 Own Debenture purchased
 When own debenture are
purchased
Own Debentures A/c Dr.
Debenture interest A/c Dr.
Bank A/c Cr.
 When interest on own debenture
becomes due:
Debenture interest A/c Dr.
Interest on own Debenture A/c Cr.
 When debenture are cancelled:
Debenture Account Dr.
Own debenture A/c Cr.
 CUM INTEREST AND EX-
INTEREST QUOTATIONS

 Company has to pay the seller

besides the price for the debenture
the interest for the period
 Company has to pay the quoted
price inclusive of the interest for the
period.
The
End