Company AccountsQ-3 | Issue of DebenturesQuestion 5231 of 112
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Issue of Debentures as Collateral Security

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Detailed Solution & Explanation

Issue of Debentures as Collateral Security: Issue of Debentures as Collateral Security means issue of debentures as an additional security, ie., in addition to the prime security. It is to be realised only when the prime security fails to pay the amount of the loan. For example, when a company takes a loan of ₹ 10,00,000 from a bank, it may have to issue debentures as collateral security in addition to the principal security. Debentures issued as a collateral security can be dealt with in the book in two ways: (i) First Method: Journal entry is not passed in the books of account at the time of issue of debentures as collateral security. However, it is disclosed by way of information below debentures, which are shown as Long-term Borrowings under Non-Current Liabilities or as Short-term Borrowings under Current Liabilities. (ii) Second Method : Debentures issued as collateral security may be recorded in the books of account. The Journal entry passed is : Debentures Suspense A/c Dr. [This appears on the assets side] To....% Debentures A/c [This appears on the liabilities side] When the loan is paid the above entry is cancelled by means of a reverse entry.

About This Chapter: Partnership & Companies

Paper

Paper 1: Accounting

Weightage

15-20%

Key Topics

Admission, Retirement, Death, Shares, Debentures

This chapter covers Admission, Retirement, Death, Shares, Debentures and is part of Paper 1: Accounting in the CA Foundation exam.

View Official ICAI Syllabus

Exam Strategy Tip

This topic carries 15-20% weightage. Focus on understanding core concepts rather than memorizing.

Key Concepts to Understand

Debentures

Long-term debt instruments issued by a company to the public for raising loan capital, carrying a fixed rate of interest (coupon rate) payable regardless of profit. Debenture holders are creditors, not owners, of the company.

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