CS Executive · Corporate Accounting and Financial Management · Accounting for Debentures
Arjun Ltd issues debentures as collateral security to its bank against a loan. What is the usual accounting treatment?
Debentures issued as collateral security need no regular issue entry, since no cash is received for them. The company records only the loan, with a footnote disclosure or memorandum entry of the collateral debentures. Treating them as a normal issue would double count the liability.
- ARecord full issue as a liability with cash debited
- BMake no entry, or record by a memorandum entry or footnote disclosure of the loanCorrect
- CCredit Securities Premium Account
- DDebit Discount on Issue of Debentures
Explanation
Collateral debentures are only additional security; no cash is received for them. The loan is the liability, so only a note or a memorandum entry is made. Recording them as a full issue would overstate liabilities.
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