Accounting for Debentures in Corporate Accounting, CS Executive Dec 2025/June 2026 Preparation
Accounting for Debentures in CS Executive covers issue, interest, redemption, and journal entries vital for Corporate Accounting Dec 2025 and June 2026 exams. It explains types of issues (par, premium, discount), collateral security, TDS, and redemption methods. Understanding debenture accounting helps students master key liability concepts and score well in CS Executive Corporate Accounting.
Muskan Verma21 Nov, 2025
Share
Accounting for Debentures CS Executive: When a company needs money, it has two main options. It can raise funds from shareholders by issuing shares, or it can borrow money by issuing debentures. Shares give ownership rights, but debentures create a liability for the company. Understanding how to record these transactions in company accounts is very important for students preparing for the Accounting for Debentures CS Executive exams.
In the CS Executive Corporate Accounting Dec 2025 and June 2026 exams, one of the most common questions relates to the issue, interest, and redemption of debentures. This topic is not just about passing the exam but also about understanding how companies handle borrowed funds in real life.
Below, we’ve explained Accounting for Debentures CS Executive in simple steps. We will look at the issue of debentures, journal entries, over-subscription, discount and premium, collateral security, interest, redemption, and even the purchase of debentures from the market.
What are Debentures in Corporate Accounting?
Debentures are documents issued by a company when it borrows money from the public. They are proof that the company owes money to the debenture holders. Unlike shares, debentures do not make the holder an owner. Instead, debenture holders are creditors of the company.
In CS Executive Corporate Accounting, debentures are treated as long-term liabilities. They create an obligation on the company to pay fixed interest at regular intervals and repay the principal amount at maturity.
Thus, Debenture accounting in company accounts is an important part of the syllabus. Students must understand that debentures always appear on the liability side of the balance sheet.
Accounting Treatment for Issues of Debentures
A company can issue debentures in different ways at par, at a premium, at a discount, or for consideration other than cash. Each type of issue has a different issue of debentures accounting treatment.
|
Accounting Treatment for Issues of Debentures |
||
|
Type of Issue |
Journal Entry |
Explanation |
|
At Par |
Bank A/c Dr. To Debentures A/c |
The company receives money equal to face value. |
|
At Premium |
Bank A/c Dr. To Debentures A/c To Securities Premium A/c |
The company gets more than face value. Extra is credited to Securities Premium. |
|
At Discount |
Bank A/c Dr. Discount on Issue of Debentures A/c Dr. To Debentures A/c |
The company receives less than face value. Loss is treated as a capital loss. |
|
For Consideration Other Than Cash |
Vendor A/c Dr. To Debentures A/c |
Debentures are given instead of cash for purchasing assets or settling liabilities. |
Over-Subscription of Debentures
Sometimes, more people apply for debentures than the number issued. This situation is called over-subscription. In such cases, a company can either refund the extra money or adjust it against allotment and calls.
In Debenture accounting in company accounts, over-subscription must be carefully recorded. The adjustment ensures fairness and proper accounting.
Discount and Premium on Debentures
Debentures can be issued either at a discount or at a premium. The treatment is different in both cases.
|
Discount and Premium on Debentures |
|||
|
Type of Issue |
Meaning |
Accounting Treatment |
Impact |
|
Issued at Discount |
Debentures issued below face value. The company receives less money than face value. |
Bank A/c Dr. Discount on Issue of Debentures A/c Dr. To Debentures A/c |
A discount is a capital loss. It is written off gradually over the life of the debentures. |
|
Issued at Premium |
Debentures issued above face value. The company receives more money than face value. |
Bank A/c Dr. To Debentures A/c To Securities Premium A/c |
Premium is a capital profit. It is transferred to Securities Premium Reserve. |
Debentures Issued as Collateral Security
Sometimes companies issue debentures as extra security while taking loans. These debentures are not issued to raise money but only to give confidence to lenders.
| Debentures Issued as Collateral Security | ||
| Method | Journal Entry / Treatment | Explanation |
| No Entry Method | No journal entry. Only a note is shown in the balance sheet. | The company does not actually issue debentures. They are just shown as security. Mentioned under “Notes to Accounts.” |
| Entry Method | Debentures Suspense A/c Dr.To Debentures A/c | Debentures are recorded in accounts as if issued, but shown separately. Debentures Suspense A/c cancels the liability effect. |
Interest on Debentures Accounting
One of the most important features of debentures is that interest must be paid whether the company makes a profit or not. This makes debentures different from shares.
| Interest on Debentures Accounting | ||
| Step | Journal Entry | Explanation |
| 1. Recording Interest Expense |
Interest on Debentures A/c Dr. To Debenture Holders A/cTo TDS Payable A/c |
Interest is a compulsory charge. It must be paid even if the company has no profit. TDS is deducted before payment. |
| 2. Payment of Interest |
Debenture Holders A/c Dr. To Bank A/c |
Actual payment made to debenture holders after deducting TDS. |
| 3. Payment of TDS to the Government |
TDS Payable A/c Dr. To Bank A/c |
The company deposits the deducted TDS with the government. |
Redemption of Debentures
Redemption means repayment of debentures. It can happen at par, premium, or discount.
Methods of redemption include:
- Lump sum at maturity
- In installments
- By purchasing from the market
- By conversion into shares
The redemption of debentures is a very important topic in the CS Executive Corporate Accounting Dec 2025 exam. Students should clearly understand the journal entries for each case.
Also, companies create a Debenture Redemption Reserve (DRR) and Debenture Redemption Reserve Investment (DRRI) to ensure funds are available at the time of repayment. This ensures smooth redemption and builds investor trust.
Purchase of Debentures from the Open Market
A company can buy back its own debentures from the open market. This can be done for cancellation or for investment.
| Purchase of Debentures from the Open Market | |||
| Case | Meaning | Accounting Treatment | Impact |
| For Cancellation | The company buys back debentures to cancel them. | Debentures A/c Dr.To Bank A/c(Profit or Loss transferred to Capital Reserve/Profit & Loss A/c) | If purchased below face value → Profit.If purchased above face value → Loss. |
| For Investment | The company buys back debentures but holds them as an investment. | Investment in Own Debentures A/c Dr.To Bank A/c | Debentures appear as an asset under Investments in the balance sheet. |