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Class 12 Issue of Debentures: cheat sheet
CBSE Accountancy. Kinds of debentures, issue at par, premium or discount with terms of redemption, loss on issue, debentures to vendors, collateral security and debenture interest.
Key ideas
- Debentureholders are creditors: interest is a charge against profit, paid whether there is profit or not, and they have no votes.
- Debentures may be secured or unsecured, redeemable or irredeemable, convertible or not, registered or bearer, or zero coupon (no interest, issued at a deep discount).
- A premium on issue is credited to Securities Premium; a discount on issue and a premium payable on redemption together make the loss on issue.
- The loss on issue is written off in the year of issue, from Securities Premium first and the rest from the Statement of Profit and Loss.
- Debentures given to a vendor are counted at their issue price; on buying a business, consideration above the net assets is goodwill.
- Debentures given as collateral security are either just noted or recorded against Debenture Suspense; no interest is paid on them.
- Interest is face value × coupon rate for the time outstanding, paid in full (TDS is not in the CBSE 2026–27 syllabus).
Remember
| Loss on issue | number × (discount per debenture + premium on redemption) |
| Allotment entry | Application and Allotment A/c (issue price) and Loss on Issue A/c Dr.; To Debentures A/c (face value), Premium on Redemption A/c, Securities Premium A/c |
| Interest for a year | face value × rate ÷ 100 |
| Interest for part of a year | face value × rate ÷ 100 × months ÷ 12 |
| Debentures to a vendor | amount payable ÷ issue price |
| Goodwill on buying a business | purchase consideration − (assets − liabilities) |
| Refund on extra applications | extra debentures applied for × application money |
Watch out
- Working interest on the issue price instead of the face value.
- Dividing the amount payable to a vendor by ₹100 when the debentures are at a premium or discount.
- Paying interest on debentures held only as collateral security.
Worked example
Greenleaf Ltd took over assets of ₹3,50,000 and liabilities of ₹54,000 from another firm for a purchase consideration of ₹3,06,000. It paid ₹16,000 in cash and the rest by issuing 9% debentures of ₹100 each at par. Pass the journal entries.
Working: goodwill ₹3,06,000 − (₹3,50,000 − ₹54,000) = ₹10,000; debentures ₹2,90,000 ÷ ₹100 = 2,900
Answer: (i) Sundry Assets A/c Dr. ₹3,50,000 Goodwill A/c Dr. ₹10,000 To Sundry Liabilities A/c ₹54,000 To Vendor A/c ₹3,06,000 (ii) Vendor A/c Dr. ₹3,06,000 To Bank A/c ₹16,000 To 9% Debentures A/c ₹2,90,000
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