Debentures

Debentures

🟢 Lite — Quick Review (1h–1d)

Rapid summary for last-minute revision before your exam.

A debenture is a written acknowledgement of a loan made to a company, bearing a fixed rate of interest and repayable on a fixed future date. Holders are creditors, not owners — they have no voting rights and receive interest before any dividend is paid.

Key facts to lock in:

• Cash on issue = Number of debentures × Issue price per unit (where Issue price = Face value + Premium − Discount).
• Annual interest = Face (nominal) value × Nominal interest rate, paid in cash on the coupon dates.
• Profit or loss on redemption = (Issue price − Redemption price) × Number redeemed.

Term	Meaning in one line
Redeemable	Repayable on a stated future date
Irredeemable	Perpetual — no fixed repayment date
Mortgage debenture	Secured by a fixed charge on company assets
Bearer vs Registered	Detachable coupons vs name recorded in debenture register
Sinking fund	Cash reserve built up gradually to fund redemption

WASSCE tip: Debentures appear about every 2–3 years, usually for 10–15 marks in Paper 2 Section B. Always show accrued interest as a current liability on the Statement of Financial Position.

---

🟡 Standard — Regular Study (2d–2mo)

Standard content for students with a few days to months.

Nature of a Debenture

A debenture is an instrument of loan capital. The issuing company receives cash now in exchange for a promise to repay principal later and pay interest half-yearly or yearly. Because debenture holders rank above shareholders in a liquidation, debentures are a cheaper form of finance than equity — but the interest must be paid even when the company makes a loss.

Issue at Par, Discount and Premium

The face (nominal) value is printed on the certificate; the issue price is what investors actually pay.

Issue condition	Per-unit calculation	Cash received per debenture
At par	Face value × 100 %	Face value
At discount	Face value − Discount	Less than face value
At premium	Face value + Premium	More than face value

When issued at a discount, the discount is not an asset — it is a loss written off to the Statement of Profit or Loss, or amortised over the life of the debenture.

Interest on Debentures

Interest is always calculated on face value, not on issue proceeds.

Interest per year (₵) = Face value of debentures in issue × Coupon rate
Cash interest paid     = Interest for the period on debentures actually held

At the financial year-end, the unpaid portion is accrued:

Dr Profit or Loss Cr Accrued Debenture Interest (under Current Liabilities)

Redemption

Redeemable debentures may be repaid by lot, by open-market purchase, or by conversion into shares. The journal for redemption at a premium is:

Dr Debentures (face value) + Dr Premium on Redemption Cr Cash/Bank (redemption price)

Any difference between issue price and redemption price is recognised as a profit or loss on redemption in the Statement of Profit or Loss.

---

🔴 Extended — Deep Study (3mo+)

Comprehensive coverage for students on a longer study timeline.

Worked Example

Sunrise Ltd issues 10,000 8 % debentures of ₵100 each at 96, redeemable at 105. Interest is paid annually on 31 December.

Item	Calculation	Amount (₵)
Cash received on issue	10,000 × 96	960,000
Discount on issue (loss)	10,000 × (100 − 96)	40,000
Annual cash interest	10,000 × 100 × 8 %	80,000
Redemption price	10,000 × 105	1,050,000
Loss on redemption	10,000 × (96 − 105)	90,000 loss

Common Mistakes

• Crediting the Debentures Account when paying interest — interest must debit Profit or Loss, never the liability.
• Treating debenture discount as an asset on the balance sheet.
• Omitting accrued interest under Current Liabilities at year-end.
• Computing interest on the issue price instead of the face value.
• Forgetting the redemption premium when calculating the loss on redemption.

Adjacent Topics

Debentures connect directly to share capital (no voting rights vs full ownership), the appropriation account (interest is paid before dividends), and sinking fund accounting (building cash for future redemption).

Exam strategy: In WASSCE Paper 2, expect a 15-mark question combining issue, one full year of interest including an accrual, and a Statement of Financial Position extract. Budget about 12 minutes; show all workings to earn method marks even if the final figure slips.

---

Continue your study

• View this topic in your WASSCE (Ghana) roadmap — see where “Debentures” fits in your personalised plan
• Build a quick revision plan — 1-day sprint covering highest-weight topics
• WASSCE (Ghana) exam overview — pattern, eligibility, and syllabus
• All Accounting notes — browse sibling topics in this subject

---

Content adapted based on your selected roadmap duration. Switch tiers using the selector above.