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Question
Short Answer Question
What is meant by ‘Issue of debentures for Consideration other than Cash’?
Solution
If a company purchases assets from its suppliers or vendors, then instead of paying them in cash the company issues debentures to them. This is known as issue of debenture for consideration other than cash. The issue of debenture for consideration other than cash serves the purpose of both the vendor as well as of the purchaser (company). From the purchaser’s point of view, purchasing an asset against the issue of debentures requires no additional cost for raising loans or arranging funds immediately. On the other hand, the vendor gets interest on the amount of debentures received. In this case, payment is deferred by issue of debentures and interest is paid for time lag payment. Debentures may be issued at par, premium or discount to the vendor.
Accounting treatment for Issue of Debentures for Consideration other than Cash
- For purchase of Assets:
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Assets A/c |
Dr. |
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To Vendor A/c |
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(Asset Purchased) |
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- For Issue of Debenture a.If debentures are issued at Par:
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Vendor A/c |
Dr. |
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To Debentures A/c |
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(Debenture issued to Vendor at par ) |
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b.If debentures are issuedat Premium
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Vendor A/c |
Dr. |
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To Debentures A/c To Securities Premium A/c |
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(Debenture issued to Vendor at premium) |
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c) If debentures are issuedat Discount
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Vendor A/c |
Dr. |
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Discount on Issue of Debentures |
Dr. |
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To Debentures A/c |
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(Debenture issued to Vendor at discount ) |
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Which of the following given statement is correct.
Statement 1 - "Debenture is written instrument acknowledging a debt under the common seal of the company"
Statement 2 - Debenture is oral instrument acknowledging a debt under the common seal of the company"
Debenture interest is paid as ______.
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Debentures are considered as ______ equity.
Which of the following statement is true?
Debenture holders are the ______.
Maximum limit on premium on issue of debentures is ______.
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- Debenture are issued at a discount of 10% and redeemable at a premium of 10%.
