Issue of debentures explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A debenture is a borrowing of the company, so the money raised is a liability and the interest is a finance cost. What makes the entries more than routine is that the terms of issue often fix the price paid now and the amount repayable later. Where the two differ, the difference is a cost of borrowing that has to be spread over the life of the debentures. This guide takes each case in turn and then works one issue at a discount, redeemable at a premium, through its whole term. The books side of such a raising is what our books of accounts and compliance team maintains for company clients.
Credit Debentures at the face value in every case. If the issue price is below face, the discount is a loss on issue; if redemption is at a premium, the premium payable is a liability created on day one, and the matching debit is also a loss on issue. Under AS 16, paragraph 4, amortisation of discounts, premiums and ancillary costs of borrowing is part of borrowing costs, so the loss is written off over the term and not all in the year of issue.
The rules in one table
| Source | What it requires | What it means in the books |
|---|---|---|
| Companies Act, section 71(1) | A company may issue debentures with an option to convert into shares at redemption; a special resolution approves such an issue | Convertible terms need the resolution before the entries are made |
| Section 71(2) | No debenture may carry voting rights | A security with votes is not a debenture |
| Section 71(4) | A debenture redemption reserve is created out of profits available for payment of dividend and used only to redeem debentures | The reserve is an appropriation of profit, not a charge; amounts are taken from the rule post, see below |
| Section 71(8) | Interest is paid and debentures redeemed as the terms of issue provide | The terms of issue decide the entries |
| AS 16, paragraph 4(b) and (c) | Borrowing costs include amortisation of discounts or premiums and of ancillary costs on borrowings | Spread the loss on issue over the term |
| AS 16, paragraph 6 | Borrowing costs go to the cost of a qualifying asset if directly attributable to it; others are an expense in the period | For most companies, a charge to the statement of profit and loss each year |
| Schedule III, Division I, long-term borrowings note | Debentures are shown with the rate of interest and particulars of redemption or conversion | Keep rate and maturity in the ledger narration |
The reserve percentages, the classes of company they apply to and the investment rules sit in the rules, not in the section. They are explained in our post on the debenture redemption reserve and investment of funds; the secured-debenture and trustee rules are in Rule 18(1) to (6). The section itself is explained in Section 71: debentures.
Entries for each type of issue
- At par, redeemable at par. Debit Bank (through application and allotment accounts if money is called in stages), credit Debentures at face value.
- At a premium. Credit the premium to Securities premium; section 52(2)(d) lets the account be used for the premium payable on redemption of debentures.
- At a discount. Debit Discount (loss) on issue of debentures with the shortfall, credit Debentures at face value.
- Redeemable at a premium. Credit Premium payable on redemption, a liability, and debit Loss on issue of debentures with the same amount.
- As collateral security. The debentures are only a back-up for a loan. Either debit Debenture suspense and credit Debentures for the face value, with the suspense shown beside the loan, or make no entry and disclose the fact in a note. Interest is payable on them only if the lender enforces the security.
- For consideration other than cash. Debit the asset at the agreed value, credit Debentures at face value, and credit the premium or debit the discount for any difference.
- Interest. Debit interest and credit Bank when paid, or credit Interest payable when accrued at the year end. Interest is on the face value, whatever the issue price.
Worked example: Meera Industries Private Limited
The entity and all figures in this example are invented for illustration.
On 1 April, Meera Industries issues 2,000 debentures of 1,000 face value at 950 each. They carry interest of 10 per cent a year on the face value, payable half-yearly, and are redeemable at 1,050 after four years. Tax deducted on the interest is ignored here (see our income-tax guides).
Workings.
- Cash received: 2,000 x 950 = 19,00,000. Face value: 2,000 x 1,000 = 20,00,000.
- Discount on issue: 2,000 x 50 = 1,00,000. Premium on redemption: 2,000 x 50 = 1,00,000.
- Loss on issue: 1,00,000 + 1,00,000 = 2,00,000.
- Interest each half-year: 20,00,000 x 10 per cent x 6/12 = 1,00,000.
- Yearly write-off: all debentures stay outstanding for the whole term, so equal instalments: 2,00,000 / 4 = 50,000.
| Date | Particulars | Debit | Credit |
|---|---|---|---|
| 1 April | Bank Dr | 19,00,000 | |
| Loss on issue of debentures Dr | 2,00,000 | ||
| To 10 per cent Debentures | 20,00,000 | ||
| To Premium payable on redemption | 1,00,000 | ||
| 30 Sept | Interest on debentures Dr | 1,00,000 | |
| To Bank | 1,00,000 | ||
| 31 March | Interest on debentures Dr | 1,00,000 | |
| To Bank | 1,00,000 | ||
| 31 March | Finance cost (loss on issue written off) Dr | 50,000 | |
| To Loss on issue of debentures | 50,000 |
The two interest entries and the write-off repeat in each of the four years.
| Year | Loss on issue at start | Written off | Balance carried forward |
|---|---|---|---|
| 1 | 2,00,000 | 50,000 | 1,50,000 |
| 2 | 1,50,000 | 50,000 | 1,00,000 |
| 3 | 1,00,000 | 50,000 | 50,000 |
| 4 | 50,000 | 50,000 | nil |
Check. Statement of profit and loss charge each year: interest 2,00,000 + write-off 50,000 = 2,50,000; over four years 10,00,000. Cash view: paid out 8,00,000 interest + 21,00,000 on redemption = 29,00,000, less 19,00,000 received = 10,00,000. The two agree.
At the end of year 1 the balance sheet shows debentures of 20,00,000 and the premium payable of 1,00,000 as liabilities, and the unwritten loss of 1,50,000 as an asset until it is amortised. The premium payable is not an amount of the current year's profit; it is a liability the company has already agreed to settle on redemption.
Common mistakes
- Charging the whole loss on issue to the first year instead of spreading it over the term.
- Computing interest on the issue price instead of the face value.
- Leaving out the premium payable on redemption until the year it is paid.
- Writing off a larger loss in the early years than the debentures outstanding justify, when debentures are redeemed in instalments; the write-off then follows the debentures outstanding.
- Treating collateral debentures as raising money. No cash comes in on them.
Need help with debenture accounting?
If your company is issuing debentures and you want the entries, the redemption reserve and the notes handled together, our team can set up the ledgers and maintain them. See our books of accounts and compliance service and tell us the terms of issue.
Key takeaways
- Debentures are always credited at face value; the issue price only decides the loss on issue.
- A discount on issue and a premium on redemption together form the loss on issue, spread over the term under AS 16.
- Interest runs on the face value.
- Collateral debentures need no cash entry; show them beside the loan or in a note.
- Redemption reserve figures come from the rules, not from section 71.
Read next
- Redemption of debentures: reserve, investment and entries
- Issue, forfeiture and re-issue of shares: journal entries
- AS 16 Borrowing Costs
Disclaimer: Based on the Accounting Standards issued by the Institute of Chartered Accountants of India as on 1 April 2025, the Companies (Accounting Standards) Rules, 2021 as amended up to G.S.R. 169(E) of 10 March 2026, the Companies Act, 2013 and the ICAI guidance named in the article, as consulted on 4 October 2026. The worked example uses invented figures. Later amendments should be checked on icai.org and mca.gov.in. This article is general information, not legal advice; check the official text before acting.