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Distinction Between Share and a Debenture

Types of Debentures


Partly Secured Creditors

In case of partly secured debentures, specific assets are given by way of charge but their value is less than the amount owed by the company.

First and Second Mortgage Debentures

First mortgage debentures are payable first, out of the property charged. Second mortgage debentures are payable after satisfying the first mortgage debentures.

Zero Coupon Bond

A zero coupon bond (also called a discount bond or deep discount bond) is a bond bought at a price lower than its face value, with the face value repaid at the time of maturity. It does not make periodic interest payments. When the bond reaches maturity, its investor receives its face value.

Pari Passu Clause for Debentures

Pari passu is a Latin phrase translated as ‘ranking equally’.

When debentures are issued as ranking Pari passu, it means all the debentures of a particular series will rank together without any priority of one over the other as regards the charge created.

In the absence of a Pari passu clause, a debenture will rank for priority for the purpose of repayment, etc., according to the date of issue and if they are issued on the same date, then according to their respective numbers.

Issue and Redemption of Debentures

The procedure for the issue of debentures is exactly the same as in the case of shares except that the term ‘debentures’ is substituted for the word ‘share’ and the percentage of interest is prefixed to the term ‘debentures’.

Debentures can be issued for cash or for consideration other than cash.


Debentures can be issued either at par, premium or at a discount.


The issue price of the debentures can be collected either in lump sum or in various installments.


Redemption of debentures means discharge of liability on account of debentures by making payment to the debenture holders.


Debentures can be redeemed either at par or at premium.


When redemption is to be made at premium, there will loss at the time of redemption as there is higher value payable. In this case, such loss should be recognized at the time of issue as per principle of conservatism.


When the redemption is made at discount, there is profit which will be realized at the time of redemption. Therefore, such profit should not be recognized at the time of issue as per the principle of conservatism but should be recorded during redemption by crediting the ‘Profit on Redemption of Debentures A/c’.


The accounting treatment for issue and redemption of debentures under various circumstances is discussed in the following text.

Issue of Debentures at Par and Redemption at Par

In this case, issue price is equal to face value and redemption value is equal to face value of debenture.


No entry is passed for redemption at the time of issue.


The standard journal entries for recording the issue of debentures are as follows:



  • Similar entries are made for debenture second and third call.
  • Debenture application account is a personal account of applicants who have applied for debentures.
  • Debenture allotment account is also a personal account of allottees to whom the debenture has been allotted.
  • Unless otherwise stated, the excess application money over and above that due on allotment should be refunded to allottees.


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