Debenture Add Tick For Free

In corporate finance, a debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest.The interest paid to them is a charge against profit in the company's financial statements. The term "debenture" is more descriptive than definitive.

A debenture is a legal charge and gives the debenture holder (the lender) security over the borrower's assets. Typically, a debenture is used by a bank, factoring company or invoice discounter to take security over a limited company.A private lender can also take a debenture.

Bonds are generally issued during the inception of a business whereas Debentures are issued during the course of the business. Bonds are backed up by a collateral or security or a physical asset but Debenture are backed up by the promise made by the issuer.The rate of interest is higher in Debenture compare to a bond.

In the same way, when the company issue debenture at discount the amount is debited to the discount on issue of debentures account. The amount is shown on the asset side of the balance sheet, under the head miscellaneous expenses, until written off.

There are different journal entries in connection with the issue of debentures: On the receipt of Application Money. On allotment, the application money on debentures allotted is transferred to debentures account. Amount Due on Allotment (Along with Premium)

2.4.3 Debentures issued at Premium The amount of premium is credited to Securities Premium account and is shown on the liabilities side of the balance sheet under the head Reserves and Surpluses.

Debentures are shown in the balance sheet of the company under the item Secured loans. Debentures are usually secured against the assets of the company. In case of debentures they are not secured by providing a collateral or security. These debentures have a charge on the assets.