Page 11 - LN ISSUE OF DEB

• It is a subsidiary or secondary security.

• Whenever a company takes loan from bank or any financial
institution it may issue its debentures as secondary security which

is in addition to the principal security. Such an issue of debentures

is known as 'issue of debentures as collateral security'.

• The lender will have a right over such debentures only when
company fails to pay the loan amount and the principal security is

exhausted.

• In case the need to excercise the right dose not arise debentures

will be returned back to the company.
• No interest is paid on the debentures issued as collateral security

because company pays interest on loan. This is used when there are

no assets to mortgage.

In the accounting books of the company issue of debentues as collateral

security can be credited in two ways.

• First method : No Journal entry to be made in the books of accounts
of the company. Debentures are issued as collateral security. A note of

this fact is given;

• On the liability side of the balance sheet under the heading Long term
borrowings

An Extract of Balance Sheet As at

Liabilities Amount Assets Amount

Non Current Liabilities
xxxx
(a) Long Term Borrowings

Second Method: Under this method following entries are recorded in the

books of accounts:

Debenture Suspense A/c Dr.