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Question:

Describe the meaning of ‘Debenture Issued as Collateral Securities’. What accounting treatment is given to the issue of debentures in the books of accounts?

Answer:

Debentures issued as collateral security is secondary or parallel security for the original loan taken by the company. The lender can realize the collateral security in case borrower fails to make the payment of the original loan. In this article, we will learn more about the debentures issued as collateral security and accounting treatment.

Debentures issued as Collateral Security

Collateral means secondary. Thus, collateral security refers to supporting or secondary security for a loan. In case the borrower fails to pay the original loan amount on the due date, the lender can sell the collateral security to realize the amount of loan.

Usually, the borrower places a particular asset or a group of assets as collateral security. When he fails to pay the loan, these assets are sold and the loan is paid from the sale proceeds.


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