Business Studies

Debentures may be issued by a company for ________.


ANSWER

Any of above


SOLUTION
Issue of Debentures for Cash :-
Debentures in the general course of business are issued for cash. This issue of debentures that happens can be of three kinds, just like an issue of shares, at par, at a discount, and at a premium. So let us take a look at all three and their respective accounting entries as well.

Issue at Par :-
Here the debentures will be issued exactly at their nominal price, i.e. not above or below the face value of the debentures. Now the company can decide to collect the cash all at once, in a lump sum. Or the money will be collected in installments, like with allotment, first call, second call, last call etc.

Issue at Discount :-
When the debentures are issued at below face value, such issue of debentures is known as a discount issue. Like, say for example the debenture has a nominal value of 100/- but is issued for 90/-. Then such debentures are said to be issued at discount.
Discount on issue of debentures is treated as a capital loss and put under “Miscellaneous Expenses” on the asset side of the balance sheet until it can be written off. Then during the life of the debentures, such discount amount is written off by debiting it to the Profit and Loss A/c. It can also be charged against the Capital Profits of the company.

Issue at Premium:-
Now we come to the issue of debentures at a premium, that is when more money than the nominal value is charged. So if a debenture with a face value of 100/- is sold at 110/- then it is issued at a premium. The amount of the premium is charged to a special account known as Securities Premium Reserve Account. This account will be shown on the liabilities side of the Balance Sheet under the heading of Reserves and Surplus.


Issue of Debentures for Consideration other than Cash :-
Debentures can be issued for non-cash considerations. The company may have purchased assets from some vendors or acquired some other business. Then instead of paying cash, the company may issue debentures to such vendors. Such an issue for debentures can be at par, or for a discount or at a premium.

Issue of Debentures as Collateral Security :-
Debentures can also be issued by a company as collateral security against a bank loan or any such borrowings. A collateral security is like a parallel security which is provided along with the actual security against the loan taken. Debentures issued as such a collateral liability are a contingent liability for the company, i.e. the liability may or may not arise. Only when the company defaults on such a loan will this liability arise.
View Answers

You're just one step away

Create your Digital Resume For FREE on your name's sub domain "yourname.wcard.io". Register Here!


Single Correct Medium Published on 18th 08, 2020
Next Question
Questions 244531
Subjects 8
Chapters 125
Enrolled Students 197
Enroll Now For FREE

Realted Questions

Q1 Single Correct Medium
For a guarantee company the liability of shareholder is ____________.
  • A. amount of guarantee specified in memorandum
  • B. amount of guarantee given on paper
  • C. both A & B
  • D. unlimited

Asked in: Business Studies - Sources of Business Finance


1 Verified Answer | Published on 18th 08, 2020

View Answer
Q2 Single Correct Medium
_________ can be defined as delay of payment permitted by the creditor or supplier of raw materials, consumables etc. against the goods purchased from him. 
  • A. Loan
  • B. Lease
  • C. Trade credit
  • D. None of the above

Asked in: Business Studies - Sources of Business Finance


1 Verified Answer | Published on 18th 08, 2020

View Answer
Q3 Single Correct Medium
 The funds required for a period of less than one year are called ___________.
  • A. Long-term finance
  • B. Medium-term finance
  • C. Short-term finance
  • D. All of the above

Asked in: Business Studies - Sources of Business Finance


1 Verified Answer | Published on 18th 08, 2020

View Answer
Q4 Single Correct Medium
Trade credit is needed to promote the ________ of an organisation.
  • A. Purchases
  • B. Sales
  • C. Drawings
  • D. Capital

Asked in: Business Studies - Sources of Business Finance


1 Verified Answer | Published on 18th 08, 2020

View Answer
Q5 Single Correct Medium
X limited issued 10,000 equity shares of Rs.10 each at premium Rs.2 each. The company has incurred issue expenses of Rs.5,000. The equity shareholders expect dividend of $$18\%$$ then cost of capital is ____________.
  • A. $$18\%$$
  • B. $$16.65\%$$
  • C. $$18.65\%$$
  • D. $$15.65\%$$

Asked in: Business Studies - Sources of Business Finance


1 Verified Answer | Published on 18th 08, 2020

View Answer