AccountancyCBSE Class 12 · Issue and Redemption of Debentures

Debentures Issued for Consideration Other than Cash: Class 12 Entries and Sums

Q: What does issue of debentures for consideration other than cash mean?

Issuing debentures to a vendor as payment for assets or a business, instead of paying cash.

Q: How do I calculate the number of debentures?

Divide the amount to be paid in debentures by the issue price per debenture (face value plus premium or minus discount).

Q: When is goodwill recorded on purchase of business?

When the purchase consideration exceeds the net assets taken over; a lower consideration gives capital reserve.

Q: Is collateral security in the syllabus?

Only the concept: debentures issued as additional security for a loan, recorded by a note or a Debenture Suspense entry.

Updated 15 October 2026 · Fact-checked

A company may pay a vendor for assets or a business by issuing debentures instead of cash. First the purchase is recorded, with goodwill if the price exceeds net assets or capital reserve if it is lower, crediting the vendor. Then the vendor is debited and debentures credited; the number issued equals the purchase consideration divided by the issue price.

Understand Debentures Issued for Consideration Other than Cash

What it means. Instead of paying cash, a company can settle the price of assets or a running business by issuing its own debentures to the seller (the vendor). No cash moves, so it is a non-cash transaction (it will not appear in a Cash Flow Statement).

Step 1: record the purchase.

Buying specific assets: Sundry Assets A/c Dr; To Vendor A/c (purchase consideration).
Buying a business: Sundry Assets A/c Dr (agreed values); To Sundry Liabilities A/c (taken over); To Vendor A/c (purchase consideration).
If purchase consideration > net assets (assets − liabilities): the excess is Goodwill (Dr).
If purchase consideration < net assets: the shortfall is Capital Reserve (Cr).

Step 2: issue debentures to the vendor.

Number of debentures = Amount payable by debentures ÷ issue price per debenture.
At par: Vendor A/c Dr; To Debentures A/c.
At a premium: Vendor A/c Dr; To Debentures A/c; To Securities Premium A/c.
At a discount: Vendor A/c Dr; Discount on Issue of Debentures A/c Dr; To Debentures A/c.
Redeemable at a premium: also Loss on Issue A/c Dr; To Premium on Redemption of Debentures A/c.

Part cash, part debentures. Pay the cash part first (Vendor Dr; To Bank), then divide the rest by the issue price. If the division leaves a fraction, the fraction is usually paid in cash.

Related concept: debentures as collateral security. Debentures may be issued as additional (secondary) security for a loan. No money is received, so either no entry is made (shown by way of a note under the loan), or Debenture Suspense A/c Dr; To Debentures A/c is passed and shown as a deduction from debentures. Only the concept is in the 2026-27 syllabus.

Debentures Issued for Consideration Other than Cash: key facts

Net assets: Assets taken over − liabilities taken over
Goodwill or capital reserve: Purchase consideration − net assets: positive = goodwill; negative = capital reserve
Number of debentures: Amount to be paid in debentures ÷ issue price per debenture; Issue price = face ± premium or discount.
Securities Premium or discount: Number × (issue price − face value); Positive: premium; negative: discount.

How to answer Debentures Issued for Consideration Other than Cash questions

Treat these questions as two separate entries: buying from the vendor, then paying the vendor.

1List assets and liabilities taken over at agreed values; find net assets.
2Compare with purchase consideration: goodwill or capital reserve.
3Pass the purchase entry crediting the vendor with the purchase consideration.
4Subtract any cash payment; divide the remainder by the issue price to get the number of debentures.
5Pass the issue entry with Securities Premium, discount or loss on issue as the terms require.
6Check both entries balance.

Debentures Issued for Consideration Other than Cash in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Paying a vendor in debentures

Suppose Starline Logistics Ltd (a fictional company) wants to buy a warehouse worth ₹9,00,000 from its owner but would rather keep its cash for daily operations. The owner agrees to accept 10% debentures of ₹100 each at par, which will pay him interest every year.

How many debentures are issued, and what entries does the company pass?

Try it first, then show the solutionSolution

Number = 9,00,000 ÷ 100 = 9,000 debentures.
Warehouse A/c Dr 9,00,000 To Vendor A/c 9,00,000.
Vendor A/c Dr 9,00,000 To 10% Debentures A/c 9,00,000.

Answer: 9,000 debentures. The company gets the warehouse without spending cash; the vendor becomes a creditor who earns 10% interest until the debentures are redeemed.

Memory hook: Debentures to a vendor are an IOU instead of cash.

Tricks to remember Debentures Issued for Consideration Other than Cash

Short memory aids. Say each one aloud once, then use it on a question the same day.

Buy, then pay
Entry 1 makes the vendor a creditor; entry 2 settles him with debentures.
Use it when: Structure of every answer.
Divide by price, not face
Number of debentures = amount ÷ issue price.
Use it when: Counting debentures.
Pay more, get goodwill; pay less, get reserve
PC above net assets = goodwill; PC below = capital reserve.
Use it when: Purchase of business.

Debentures Issued for Consideration Other than Cash: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Number of debentures at a premium · 1 mark · MCQBoard level

A company purchased machinery for ₹2,20,000, payable by issuing 9% debentures of ₹100 each at a premium of 10%. The number of debentures issued is:
(a) 2,200
(b) 2,000
(c) 2,420
(d) 1,800

Try it first, then show the solutionSolution

Issue price = ₹110.
Number = 2,20,000 ÷ 110 = 2,000.

Answer: (b) 2,000

Example 2: Assets bought, debentures at a discount · 3 marks · Short answerBoard level

Delta Ltd purchased machinery of ₹1,90,000 from Kapoor Traders, payable by debentures of ₹100 each issued at a discount of 5%. Pass the journal entries. (3 marks)

Try it first, then show the solutionSolution

Machinery A/c Dr 1,90,000 To Kapoor Traders 1,90,000.
Number = 1,90,000 ÷ 95 = 2,000; discount = 2,000 × 5 = 10,000.
Kapoor Traders Dr 1,90,000; Discount on Issue of Debentures A/c Dr 10,000; To Debentures A/c 2,00,000.

Answer: 2,000 debentures issued; discount ₹10,000.

Example 3: Business with goodwill, part cash · 4 marks · Short answerHarder board level

A company bought a business with assets of ₹6,00,000 and liabilities of ₹1,00,000 for ₹5,40,000. ₹40,000 was paid in cash and the balance by debentures of ₹100 each at a premium of 25%. Pass the journal entries. (4 marks)

Try it first, then show the solutionSolution

Net assets = 5,00,000; goodwill = 40,000.
Sundry Assets Dr 6,00,000; Goodwill Dr 40,000; To Sundry Liabilities 1,00,000; To Vendor 5,40,000.
Vendor Dr 40,000 To Bank 40,000.
Balance 5,00,000 ÷ 125 = 4,000 debentures: Vendor Dr 5,00,000; To Debentures 4,00,000; To Securities Premium 1,00,000.

Answer: Goodwill ₹40,000; 4,000 debentures with Securities Premium of ₹1,00,000.

Example 4: Business with capital reserve · 4 marks · Short answerHarder board level

A company took over a business: building ₹5,00,000, stock ₹3,00,000 and creditors ₹1,50,000, for a purchase consideration of ₹6,00,000, payable by 12% debentures of ₹100 each at par. Pass the journal entries. (4 marks)

Try it first, then show the solutionSolution

Net assets = 8,00,000 − 1,50,000 = 6,50,000; capital reserve = 50,000.
Building Dr 5,00,000; Stock Dr 3,00,000; To Creditors 1,50,000; To Vendor 6,00,000; To Capital Reserve 50,000.
Vendor Dr 6,00,000 To 12% Debentures 6,00,000 (6,000 debentures).

Answer: Capital Reserve ₹50,000; 6,000 debentures issued at par.

Example 5: Vendor paid in debentures redeemable at a premium · 6 marks · Long answerHOTS / competency

A company bought a business with assets of ₹5,20,000 and liabilities of ₹70,000 for ₹4,75,000, payable by debentures of ₹100 each issued at a discount of 5% and redeemable at a premium of 10%. Pass the journal entries and calculate the loss on issue. (6 marks)

Try it first, then show the solutionSolution

Net assets = 4,50,000; goodwill = 25,000.
Sundry Assets Dr 5,20,000; Goodwill Dr 25,000; To Sundry Liabilities 70,000; To Vendor 4,75,000.
Number = 4,75,000 ÷ 95 = 5,000; face value = 5,00,000.
Loss on issue = 5,000 × (5 + 10) = 75,000.
Vendor Dr 4,75,000; Loss on Issue of Debentures Dr 75,000; To Debentures 5,00,000; To Premium on Redemption of Debentures 50,000.

Answer: Goodwill ₹25,000; 5,000 debentures; Loss on Issue ₹75,000 (to be written off in the year of allotment).

Example 6: Cash flow link · 1 mark · Assertion-reasonHOTS / competency

Assertion (A): Debentures issued to a vendor for purchase of a building do not appear in the Cash Flow Statement.
Reason (R): The transaction involves no flow of cash or cash equivalents.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.

Try it first, then show the solutionSolution

A non-cash investing and financing transaction is excluded from the Cash Flow Statement. R explains A.

Answer: (a) Both A and R are true, and R is the correct explanation of A.

Where students lose marks in Debentures Issued for Consideration Other than Cash

The slips examiners see most often, and what to write instead.

Mistake: Dividing by face value
Ignoring the premium or discount.
Wrong working
2,20,000 ÷ 100 = 2,200 debentures.
Right working
2,20,000 ÷ 110 = 2,000 debentures.
Do this: Divide by the issue price.
Usually costs: 1-2 marks.
Mistake: Debiting Bank when debentures go to the vendor
Treating it as a cash issue.
Wrong working
Bank A/c Dr To Debentures A/c
Right working
Vendor A/c Dr To Debentures A/c
Do this: No cash: settle the vendor's account.
Usually costs: 1 mark.
Mistake: Missing goodwill or capital reserve
Not comparing PC with net assets.
Wrong working
Purchase entry that does not balance.
Right working
Add Goodwill Dr or Capital Reserve Cr for the difference.
Do this: Always compute net assets first.
Usually costs: 1 mark.
Mistake: Forgetting the cash part
Dividing the whole purchase consideration.
Wrong working
5,40,000 ÷ 125.
Right working
(5,40,000 − 40,000) ÷ 125 = 4,000.
Do this: Remove cash paid before counting debentures.
Usually costs: 1 mark.

Exam tips

Name the vendor's account in the entry (for example, 'Kapoor Traders').
Show the number of debentures as a separate working line.
If redemption terms are given, include Loss on Issue in the vendor entry.
This topic appears as 1-mark MCQs and 3- or 4-mark journal questions.

Practice questions on Debentures Issued for Consideration Other than Cash

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
When debentures are issued to a vendor, the entry is:
(a) Bank A/c Dr To Debentures A/c
(b) Vendor A/c Dr To Debentures A/c
(c) Debentures A/c Dr To Vendor A/c
(d) Sundry Assets A/c Dr To Debentures A/c
Hint
The vendor is settled.
Answer
(b) Vendor A/c Dr To Debentures A/c
Q2 · 1 mark · MCQBoard level
If the purchase consideration is less than the net assets taken over, the difference is credited to:
(a) Goodwill
(b) Securities Premium
(c) Capital Reserve
(d) General Reserve
Hint
A capital profit.
Answer
(c) Capital Reserve
Q3 · 3 marks · Short answerBoard level
A company bought furniture of ₹50,000 from Zen Furnishers and paid by issuing 10% debentures of ₹100 each at par. Pass the journal entries. (3 marks)
Hint
500 debentures.
Answer
Furniture A/c Dr 50,000 To Zen Furnishers 50,000. Zen Furnishers Dr 50,000 To 10% Debentures A/c 50,000 (500 debentures).
Q4 · 3 marks · Short answerHarder board level
Assets worth ₹3,30,000 were purchased and paid for by debentures of ₹100 each at a premium of 10%. Calculate the number of debentures and pass the issue entry. (3 marks)
Hint
Issue price ₹110.
Answer
Number = 3,30,000 ÷ 110 = 3,000. Vendor Dr 3,30,000; To Debentures 3,00,000; To Securities Premium 30,000.
Q5 · 4 marks · Short answerHarder board level
A company bought a business with assets of ₹4,00,000 and liabilities of ₹50,000 for ₹3,80,000, paid by debentures of ₹100 each at a discount of 5%. Pass the journal entries. (4 marks)
Hint
Goodwill 30,000; 4,000 debentures.
Answer
Sundry Assets Dr 4,00,000; Goodwill Dr 30,000; To Sundry Liabilities 50,000; To Vendor 3,80,000. Vendor Dr 3,80,000; Discount on Issue of Debentures Dr 20,000; To Debentures 4,00,000.
Q6 · 3 marks · Short answerHarder board level
Explain the two ways of recording debentures issued as collateral security. (3 marks)
Hint
Note or suspense account.
Answer
(1) No entry: the issue is shown by a note under the loan secured, stating that debentures have been issued as collateral. (2) Entry: Debenture Suspense A/c Dr To Debentures A/c; in the balance sheet, Debenture Suspense is deducted from Debentures. In both, no money is received and no interest is payable on these debentures.
Q7 · 3 marks · Short answerHarder board level
A company purchased assets of ₹1,00,000, paying by debentures of ₹100 each at a premium of 20%, any fraction to be paid in cash. Calculate the debentures issued and the cash paid. (3 marks)
Hint
Issue price ₹120.
Answer
1,00,000 ÷ 120 = 833.33, so 833 debentures (₹99,960: face 83,300, premium 16,660) and ₹40 in cash.
Q8 · 1 mark · Assertion-reasonHarder board level
Assertion (A): When debentures are issued to vendors, the Bank Account is debited.
Reason (R): Debentures issued to vendors are a consideration other than cash.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
No cash comes in.
Answer
(d) A is false, but R is true.
Q9 · 3 marks · Short answerHOTS / competency
A company took over assets of ₹7,00,000 and liabilities of ₹2,00,000, recording goodwill of ₹60,000. The consideration was paid by debentures of ₹100 each at a premium of 12%. Find the purchase consideration and the number of debentures. (3 marks)
Hint
PC = net assets + goodwill.
Answer
PC = 5,00,000 + 60,000 = ₹5,60,000; number = 5,60,000 ÷ 112 = 5,000 debentures.
Q10 · 4 marks · Short answerHOTS / competency
A company took over assets of ₹3,00,000 and liabilities of ₹40,000 for ₹2,40,000, paid by debentures of ₹100 each at a discount of 4%, redeemable at par. Pass the journal entries. (4 marks)
Hint
Capital reserve and discount both arise.
Answer
Sundry Assets Dr 3,00,000; To Sundry Liabilities 40,000; To Vendor 2,40,000; To Capital Reserve 20,000. Number = 2,40,000 ÷ 96 = 2,500. Vendor Dr 2,40,000; Discount on Issue of Debentures Dr 10,000; To Debentures 2,50,000.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.PC ₹1,98,000; debentures of ₹100 at 10% discount: number?Show answer
2,200.
2.Is issue of debentures to a vendor shown in the Cash Flow Statement?Show answer
No; it is a non-cash transaction.
3.Where does the excess of PC over net assets go?Show answer
Goodwill.
4.What happens to a fraction of a debenture in such questions?Show answer
It is usually paid in cash.
5.Is interest payable on debentures issued as collateral security?Show answer
No, unless the loan is defaulted and the debentures are enforced.

Debentures Issued for Consideration Other than Cash: frequently asked questions

What does issue of debentures for consideration other than cash mean?

Issuing debentures to a vendor as payment for assets or a business, instead of paying cash.

How do I calculate the number of debentures?

Divide the amount to be paid in debentures by the issue price per debenture (face value plus premium or minus discount).

When is goodwill recorded on purchase of business?

When the purchase consideration exceeds the net assets taken over; a lower consideration gives capital reserve.

Is collateral security in the syllabus?

Only the concept: debentures issued as additional security for a loan, recorded by a note or a Debenture Suspense entry.