Can a company issue debentures for consideration other than cash? If so, what accounting journal entries must such a company pass?

Yes, a company can issue debentures for consideration other than cash. Sometimes a company may purchase an asset, like plant or machinery, and may issue debentures in payment of consideration for such assets. Sometimes a company may purchase some running business and may settle the purchase consideration by issue of debentures. Such type of issue of debentures is called ‘issue of debentures for consideration other than cash’. The journal entries to be passed are as under:

 

1.  When company purchase the sundry assets:

  Sundry Assets A/c  Dr.

  To Vendor’s A/c

  Or

  When company purchase the business of another company:

  Business purchase A/c  Dr. (with the amount of

  To Vendor Company’s A/c  purchase consideration)

  Or

  When Company purchase the assets and liabilities of another company:

  Assets (purchase) A/c  Dr. (At agreed price)

  Goodwill A/c  Dr. (Balancing Fig., if any)

  To Liabilities (taken over) (at agreed value)

  To Vendor Co.’s A/c (with purchase consideration)

  To Capital Reserve (Balancing Figure, if any)

 

2.  When purchase consideration is discharged by issuing debentures:

  (a) When debentures are issued at par:

  Vendor’s A/c  Dr.

  To Debentures A/c

   

(b) When debentures are issued at premium:

  Vendor’s A/c  Dr. (Purchase consideration)

  To Debentures A/c  (Face Value of Deb. Issued)

  To Debenture Premium A/c

   

(c) When debentures are issued at a discount:

  Vendor’s A/c  Dr. (Purchase Consideration)

  Debenture Discount A/c  Dr. (Amount of Discount)

  To Debentures A/c (Face Value of Deb. Issued)