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Question
Suhani Ltd. took loan of ₹ 4,00,000 from Bandhan Bank Ltd. and issued 8% Debentures of ₹ 6,00,000 as collateral security.
Explain how will the issue of debentures be accounted in the books of the company.
Explain
Journal Entry
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Solution
The debentures are issued as collateral security against the bank loan. They can be accounted for by either of the following methods:
Method 1: No Journal Entry for Collateral Debentures
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| Bank A/c ...Dr. | 4,00,000 | |||
| To Bandhan Bank Ltd. Loan A/c | 4,00,000 | |||
| (Being loan taken from Bandhan Bank Ltd.) |
No separate journal entry is passed for ₹ 6,00,000 debentures issued as collateral security. A note regarding the collateral security is shown in the Balance Sheet.
Method 2: By Passing Journal Entry for Collateral Debentures
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| 1. | Bank A/c ...Dr. | 4,00,000 | ||
| To Bandhan Bank Ltd. Loan A/c | 4,00,000 | |||
| (Being loan taken from Bandhan Bank Ltd.) | ||||
| 2. | Debenture Suspense A/c ...Dr. | 6,00,000 | ||
| To 8% Debentures A/c | 6,00,000 | |||
| (Being 8% Debentures issued as collateral security to Bandhan Bank Ltd.) |
Note: The debentures do not represent an additional liability unless Suhani Ltd. fails to repay the bank loan.
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