Issue of Debentures for, Consideration other than Cash

09/05/2021 1 By indiafreenotes

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.

Sometimes, a company purchases a running business (assets and liabilities) and issues to vendor, debentures as consideration. It is called issue of debentures in consideration, other than cash.

In such situation following entries are recorded.

(i) For Acquisition of Assets:

Sundry assets a/c Dr. (with amount of purchase consideration)

Vendor’s a/c

(Being sundry assets purchased)

(ii) For issue of Debentures at par:

Vendor’s a/c Dr. (with amount of purchase consideration)

Debentures a/c

(Being debentures issued as consideration for assets purchased)

(iii) For issue of Debentures at discount:

Vendor A/c Dr.

Discount on Issue of Debentures A/c

To Debentures A/c

(iv) For issue of Debentures at Premium:

Vendor A/c Dr.

To Debentures A/c

To Securities Premium Reserve A/c

Formula to find out No. of Debentures Issued

No. of Debentures Issued = Amount Payable/Issue Price

Particulars Amount Amount
Asset A/c Dr xxx
To Vendors A/c xxx
(Being asset purchased from vendor)
Vendors A/c Dr xxx
To Debentures A/c xxx
(Being debentures issued at par against the purchase of asset)
Vendors A/c Dr xxx
To Debentures A/c xxx
To Securities Premium A/c xxx
(Being debentures issued at a premium against the purchase of asset)
Vendors A/c Dr xxx
Discount on Debentures A/c Dr xxx
To Debentures A/c xxx
(Being debentures issued at a discount against the purchase of asset)