Issue of Debentures for Cash

When a company issues debentures for cash, the accounting treatment depends on whether the entire amount is collected in one instalment, two instalments, or more. The core idea is that the company receives cash from investors and, in return, records a liability — the debentures account — which is credited with the face value of the debentures issued.

Issue at Par (Issue Price = Face Value)

If the issue price equals the face value (e.g., a ₹100 debenture issued for ₹100), the debentures are said to be issued at par. The journal entries vary by the number of instalments in which the money is collected.

(a) Whole amount received in one instalment

This is the simplest case. The company receives the full amount at once, typically on application.

1. On receipt of application money:

   • Debit: Bank A/c (with the total amount received)
   • Credit: Debenture Application & Allotment A/c (with the same amount)
   • Reason: The company receives cash, so Bank is debited. The application & allotment account is a temporary liability account that will be closed later.

2. On allotment of debentures (transferring the amount to the debentures account):

   • Debit: Debenture Application & Allotment A/c (with the total amount)
   • Credit: Debentures A/c (with the total face value of debentures issued)
   • Reason: The temporary account is cleared (debited), and the long-term liability for debentures is created (credited).

(b) Amount received in two instalments (Application and Allotment)

This is the most common pattern in practice. The company collects part of the money on application and the balance on allotment.

1. On receipt of application money:

   • Debit: Bank A/c (with the application money received)
   • Credit: Debenture Application A/c (with the same amount)
   • Reason: Cash is received; the application account is a temporary liability.

2. For adjustment of application money on allotment:

   • Debit: Debenture Application A/c (with the application money)
   • Credit: Debentures A/c (with the application money)
   • Reason: The application money is now treated as part payment for the debentures. The temporary account is closed, and the debentures liability is credited.

3. For allotment money due:

   • Debit: Debenture Allotment A/c (with the amount due on allotment)
   • Credit: Debentures A/c (with the same amount)
   • Reason: The company has a claim (receivable) from the debenture holders for the allotment money. The debentures liability is increased by this amount.

4. On receipt of allotment money:

   • Debit: Bank A/c (with the amount actually received)
   • Credit: Debenture Allotment A/c (with the same amount)
   • Reason: Cash is received, and the receivable (allotment account) is cleared.

(c) Amount received in more than two instalments

If the company collects money in three or more instalments (e.g., application, allotment, first call, final call), the pattern extends logically.

• On making the first call:
  • Debit: Debenture First Call A/c
  • Credit: Debentures A/c …