What will be the journal entry for the issue of debentures, when 10% debentures of ₹1,00,000 are issued as Collateral Security against a loan of ₹1,50,000?
Answer & explanation
Correct answer: option 2
The correct answer is option 2-
10% Debentures Suspense A/c Dr. ₹1,00,000
To Debenture A/c ₹1,00,000
(Issue of debentures as collateral security)
Debentures issued as collateral security can be dealt in two ways in the books of the company.
* First Method- Company does not make any journal entry in the account books at the time of issue of these debentures. A note is attached below the loan on the liabilities side of the balance sheet. It will state the fact that they have been secured by the issue of debentures.
* Second Method- Sometimes the issue of debentures as collateral security is shown by making the following journal entry:
Debenture Suspense A/c Dr.
To Debentures A/c
So, the following journal entry is passed for the issue of debentures-
10% Debentures Suspense A/c Dr. ₹1,00,000
To Debenture A/c ₹1,00,000
(Issue of debentures as collateral security)