--- title: "Chapter 6: Issue and Redemption of Debentures" type: "Article" site_name: "TheSushant." publisher: "TheSushant." published_status: "publish" content_format: "markdown" author: "Sushant Kumar" published: "2026-04-17 21:43:21" modified: "2026-10-04 10:05:20" slug: "chapter-6-issue-and-redemption-of-debentures" canonical: "https://thesushant.in/chapter-6-issue-and-redemption-of-debentures/" excerpt: "Why This Chapter Matters Companies don’t rely only on share capital. They also raise money through debt, and that’s where debentures come in. This chapter covers: How companies borrow money..." reading_time: 5 word_count: 819 featured_image: "" featured_image_alt: "" categories: - "Accounts" - "Chapters" - "Class 12th" - "Commerce" tags: generator: "WP Markdown TS" generator_version: "1.1" language: "en-US" --- # Chapter 6: Issue and Redemption of Debentures ![Chapter 6: Issue and Redemption of Debentures](https://thesushant.in/img/og.php?id=3434&w=768&h=403) ## Why This Chapter Matters Companies don’t rely only on share capital. They also raise money through **debt**, and that’s where debentures come in. This chapter covers: * How companies borrow money * How that borrowing is recorded * How it is repaid This is a **high-weightage, practical-heavy chapter** where concepts + journal entries both matter. --- ## 1. Meaning of Debentures A debenture is a **written acknowledgement of debt** issued by a company. > It is a document that shows the company has borrowed money and promises repayment with interest. ### Key Understanding: * Debenture holders = Creditors * Company = Borrower * Interest = Fixed obligation --- ## 2. Features of Debentures * It represents **borrowed capital** * Interest is **fixed and compulsory** * It must be paid **even if there is no profit** * It is usually **secured against assets** * It has a **fixed repayment period** --- ## 3. Difference Between Shares and Debentures | Basis | Shares | Debentures | | --- | --- | --- | | Nature | Ownership | Debt | | Return | Dividend | Interest | | Payment | Only if profit | Always payable | | Voting Rights | Yes | No | | Security | Not secured | Usually secured | | Repayment | Not repaid | Repaid after time | This distinction is fundamental and frequently tested. --- ## 4. Types of Debentures --- ### A. Based on Security #### Secured Debentures * Backed by assets * Safer for investors #### Unsecured Debentures * No asset backing * Higher risk --- ### B. Based on Tenure #### Redeemable Debentures * Repaid after specific period #### Irredeemable Debentures * Repaid only at winding up --- ### C. Based on Convertibility #### Convertible Debentures * Can be converted into shares #### Non-Convertible Debentures * Cannot be converted --- ### D. Based on Interest (Coupon Rate) #### Fixed Rate * Fixed interest #### Floating Rate * Linked to market rates #### Zero Coupon * No interest, issued at discount --- ### E. Based on Registration #### Registered * Ownership recorded #### Bearer * Transferable by delivery --- ## 5. Issue of Debentures Debentures can be issued: * At par * At premium * At discount They can also be issued: * For cash * For consideration other than cash * As collateral security --- ## 6. Issue of Debentures for Cash Process is similar to shares: * Application * Allotment * Calls (if any) --- ### Basic Entries: #### On Application: Bank A/c Dr. → Debenture Application A/c #### On Allotment: Debenture Application A/c Dr. → Debentures A/c --- ## 7. Issue at Discount When issued below face value. ### Entry: Discount on Issue of Debentures A/c Dr. → Debentures A/c * Treated as **capital loss** * Written off over time --- ## 8. Issue at Premium When issued above face value. ### Entry: Bank A/c Dr. → Debentures A/c → Securities Premium Reserve A/c --- ## 9. Issue for Consideration Other Than Cash When assets are purchased and payment is made through debentures. --- ### Entry: Assets A/c Dr. → Vendor A/c Vendor A/c Dr. → Debentures A/c --- ## 10. Issue as Collateral Security Debentures given as **additional security** for loans. --- ### Two Methods: #### 1. No Entry Method * Only disclosed in balance sheet #### 2. Entry Method Debenture Suspense A/c Dr. → Debentures A/c --- ## 11. Over Subscription When applications exceed debentures offered. --- ### Treatment: * Excess money refunded * Or adjusted in allotment --- ## 12. Terms of Issue of Debentures This is a very important concept. Debentures can be: 1. Issued at par, redeemable at par 2. Issued at discount, redeemable at par 3. Issued at premium, redeemable at par 4. Issued at par, redeemable at premium 5. Issued at discount, redeemable at premium 6. Issued at premium, redeemable at premium --- ### Key Concept: If redeemable at premium: * Premium is a **future liability** * Recorded at time of issue --- ## 13. Interest on Debentures Interest is: * Fixed * Compulsory * Paid even without profit --- ### Entry: Debenture Interest A/c Dr. → Debentureholders A/c → TDS Payable A/c --- ### Payment Entry: Debentureholders A/c Dr. → Bank A/c --- ### Transfer to P&L: Profit & Loss A/c Dr. → Debenture Interest A/c --- ## 14. Tax Deducted at Source (TDS) * Company deducts tax before paying interest * Deposits it with government * Adjusted by debenture holders --- ## 15. Writing Off Discount / Loss Discount or loss on issue is: * Capital loss * Written off from: * Securities Premium * Profit & Loss --- ### Entry: Securities Premium A/c Dr. Profit & Loss A/c Dr. → Discount/Loss on Issue A/c --- ## 16. Redemption of Debentures Redemption means **repayment of debenture amount**. --- ### Methods: 1. Lump sum payment 2. Instalments 3. Purchase in open market 4. Conversion into shares --- ## 17. Key Concept of Redemption * Liability ends * Company repays principal * Premium (if any) is also paid --- ## 18. Common Mistakes Students Make * Treating debentures as capital instead of liability * Ignoring interest as compulsory expense * Confusing premium on issue and redemption * Skipping loss on issue * Wrong journal entries * Not understanding collateral security --- ## Final Understanding This chapter is about **how companies borrow and repay money**. If you understand: * Nature of debentures * Issue conditions * Interest treatment * Redemption logic Then: * Journal entries become straightforward * Numericals become predictable **Enjoyed this?** Share it with others S ### [Sushant Kumar](https://thesushant.in/author/sushant/) Founder As a current B.Com (Hons) student at DU SOL and an active Chartered Accountancy (CA) aspirant, I understand the exact pressure, syllabus confusion, and administrative hurdles students face daily. TheSushant.in was built to provide first-hand, stress-tested guidance. Every DU SOL update, exam strategy, and CA study note shared here comes directly from my personal academic journey, official notifications, and real-time student experience. No generic advice: practical, student-to-student blueprints to help you clear your exams and level up. Written & Reviewed by Author --- ## Source - **Original Article:** [https://thesushant.in/chapter-6-issue-and-redemption-of-debentures/](https://thesushant.in/chapter-6-issue-and-redemption-of-debentures/) - **Markdown Endpoint:** [https://thesushant.in/chapter-6-issue-and-redemption-of-debentures/?output=markdown](https://thesushant.in/chapter-6-issue-and-redemption-of-debentures/?output=markdown)