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CMA Intermediate · Corporate Accounting and Auditing · Redemption of Preference Shares, Issue and Redemption of Debentures

When debentures are converted into equity shares as per the terms of issue, which statement is correct regarding the entry for conversion?

On conversion, the company debits the Debenture account and credits Equity Share Capital, with any excess credited to Securities Premium. It is a non-cash settlement where the liability is discharged by issuing shares, so no bank entry is needed and Capital Redemption Reserve is not involved.

  1. ADebit Bank Account and credit Equity Share Capital
  2. BDebit Debenture Account and credit Equity Share Capital (and Securities Premium, if any)Correct
  3. CDebit Capital Redemption Reserve and credit Equity Share Capital
  4. DDebit Profit and Loss and credit Debenture Account

Explanation

Conversion is a non-cash settlement: the liability is extinguished by issuing shares. Debenture liability (including redemption premium due) is debited; share capital and any securities premium are credited. No cash and no CRR transfer is involved.

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