Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Issue and Redemption of Debentures

Question:

Debentures issued as Collateral Security:

Options:

Recorded in the books

Not recorded in the books

Either option 1 or 2

None of these

Correct Answer:

Either option 1 or 2

Explanation:

There are two treatments of issuing debentures as collateral security in the accounting books:

1. 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.

2. 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