Issue of Debentures

A debenture is a certificate acknowledging a debt — it makes the holder a creditor of the company, entitled to a fixed rate of interest regardless of whether the company earns a profit, and usually to eventual repayment of the principal, but it carries no voting rights and no ownership stake, unlike a share.

Debentures may be issued:

• At par — at face value.
• At a premium — above face value, the excess credited to Securities Premium Account.
• At a discount — below face value, the shortfall debited to a Discount/Loss on Issue of Debentures Account, which is a capital loss written off over the debentures' tenure or against available Securities Premium/Capital Reserve.
• For consideration other than cash — to acquire an asset or a running business, exactly as for shares.
• As collateral security — debentures issued to a lender (typically a bank) as additional security for a loan, over and above the primary security; the debentures are enforceable only if the company defaults on the loan itself.

Journal pattern for issue (application-and-allotment combined, at premium):

1. Bank A/c Dr. — To Debenture Application and Allotment A/c
2. Debenture Application and Allotment A/c Dr. — To Debentures A/c (face value) — To Securities Premium A/c (premium, if any) …