Issue of Debentures

Lesson

Part 1 — the law, issue for cash, the six issue-redemption terms and writing off capital losses. Every company, person and figure in this chapter is imagined.

In this lesson you will

State the Companies Act, 2013 rules that shape an issue of debentures
Pass entries for debentures issued at par, at a premium or at a discount, in a lump sum or in instalments, with refunds
Record the six combinations of issue and redemption terms, with Discount or Loss on Issue of Debentures
Write off capital losses in the year they arise, in the ISC order

Part 1 at a glance

Concept

What the Companies Act, 2013 says

A debentureholder is a creditor, never a member.
Debentures may be issued at a discount; shares may not.

Table of points from the Companies Act two thousand thirteen: a debenture is an instrument of debt and its holder a creditor; debentures carry no voting rights; debentures may be issued at a discount though shares may not; premium is credited to securities premium whose uses include writing off discount on debentures; interest is a charge against profit
Point	Companies Act, 2013
What a debenture is	Section 2(30): an instrument of debt, secured or not; the holder is a creditor
Voting	Section 71: debentures cannot carry voting rights
Issue at a discount	Allowed for debentures; barred for shares by Section 53 (sweat equity apart)
Premium received	Credited to Securities Premium; Section 52 lists its uses, incl. writing off discount on debentures
Return to the holder	Interest at the coupon rate on face value: a charge against profit

Concept

Issuing debentures for cash

However the money is collected, the Debentures Account is credited with face value.

Issue for cash

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