Issue of Debentures Class 12 Accountancy by Rishabh Tyagi Sir

The Issue of Debentures is one of the most important chapters in Class 12 Accountancy, especially for Board Exams 2026. Questions from this chapter are regularly asked in journal entries, numerical problems, theory questions, and case-based questions. Understanding this topic clearly helps students score well and avoid common mistakes.

This chapter deals with how companies raise long-term funds by issuing debentures and how these debentures are recorded in accounting books.

Enroll Now for Commerce Class 12

What Are Debentures?

A debenture is a written acknowledgement of debt issued by a company under its seal. It shows that the company has borrowed money from the public and promises to repay the amount after a fixed period, along with interest.

Key Features of Debentures

• They are borrowed capital

• Debenture holders are creditors, not owners

• Interest on debentures is fixed and payable even if the company incurs a loss

• Debentures are usually redeemable

• They may be secured or unsecured

What Are Issue of Debentures?

Issue of debentures means offering debentures to the public or institutions in order to raise funds for business activities such as expansion, purchase of assets, or repayment of old loans.

From an accounting point of view, issue of debentures refers to recording the receipt of money and the liability created in the books of the company.

Types of Debentures (Important for Theory Questions)

Understanding the types of debentures is important for theory-based questions, as they are commonly classified based on security, convertibility, repayment, and ownership.

1. Secured and Unsecured Debentures

• Secured Debentures: Issued against company assets as security

• Unsecured (Naked) Debentures: Issued without any security

2. Redeemable and Irredeemable Debentures

• Redeemable Debentures: Repayable after a fixed period

• Irredeemable Debentures: Not repayable during the lifetime of the company (rare today)

3. Registered and Bearer Debentures

• Registered Debentures: Transferable through proper registration

• Bearer Debentures: Transferable by delivery

4. Convertible and Non-Convertible Debentures

• Convertible Debentures: Can be converted into shares

• Non-Convertible Debentures: Cannot be converted into shares

Conditions of Issue of Debentures (Most Important for Numericals)

A company can issue debentures in the following ways:

1. At Par

2. At a Discount

3. At a Premium

4. For Cash

5. For Consideration Other Than Cash

Issue of Debentures at Par

When debentures are issued at their face value, it is called issue at par.

Example

10,000 debentures of ₹100 each issued at par.

Journal Entry

Bank A/c Dr.

   To Debentures A/

Issue of Debentures at a Discount

When debentures are issued at a price less than their face value, it is known as issue at discount.

Example

Debentures of ₹100 issued at ₹95.

Accounting Treatment

• Discount on Issue of Debentures is a capital loss

• Shown on the assets side of Balance Sheet

• Written off over the life of debentures

Journal Entry

Bank A/c Dr.

Discount on Issue of Debentures A/c Dr.

   To Debentures A/c

Issue of Debentures at a Premium

When debentures are issued at a price more than face value, it is called issue at premium.

Example

Debentures of ₹100 issued at ₹110.

Accounting Treatment

• Premium is a capital gain

• Credited to Securities Premium Reserve

• Shown under Reserves and Surplus

Journal Entry

Bank A/c Dr.

   To Debentures A/c

   To Securities Premium Reserve A/c

Issue of Debentures for Cash

This is the most common method where the company receives money in cash or bank.

Modes of Payment

• Lump sum payment

• Instalments:

• Application

• Allotment

• First & Final Call

Each stage has separate journal entries, which are very important for board exams.

Issue of Debentures for Consideration Other Than Cash

Sometimes, debentures are issued to vendors instead of cash.

Example

Debentures issued to a seller of land or machinery.

Journal Entry

Asset A/c Dr.

   To Vendor A/c

Vendor A/c Dr.

   To Debentures A/c

Interest on Debentures

• Interest is calculated on face value

• Paid at a fixed rate

• Treated as a charge against profit

• Paid even if the company incurs loss

Journal Entry for Interest

Interest on Debentures A/c Dr.

   To Debenture Holders A/c

Presentation in Balance Sheet (Very Important)

The presentation in the balance sheet refers to the systematic arrangement of a company’s assets, liabilities, and capital at a particular date.

On Liabilities Side

• Debentures (under Non-Current Liabilities)

• Securities Premium Reserve (if any)

On Assets Side

• Discount / Loss on Issue of Debentures (to be written off)

Common Mistakes Students Must Avoid

Many students lose marks in the Issue of Debentures chapter due to small but avoidable errors. These mistakes usually occur because of confusion between concepts, incorrect journal entries, or lack of proper revision before the exam.

• Treating debenture holders as shareholders

• Forgetting to write off the discount

• Wrong calculation of interest

• Mixing up shares and debentures

• Ignoring Securities Premium Reserve

Exam Tips for Boards 2026

To score well in Class 12 Accountancy Boards 2026, students should focus on clear concepts, regular practice, and smart revision. Important exam tips related to the Issue of Debentures chapter are given below for quick reference.

• Practice journal entries daily

• Learn formats of Balance Sheet presentation

• Understand difference-based questions

• Read questions carefully for words like at par, premium, discount

• Revise numerical questions from previous years