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Issue of Debentures as Collateral. 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.

Hence, collateral security refers to helping security for a loan. In case, the borrower fails to pay the primary loan amount on the due date, the lender can sell the collateral security to recover the amount of loan. Generally, the borrower gives a single asset or a group of assets as collateral security.

In case of issue of debentures as collateral security, the effect in the Balance Sheet is nullified because balance of Debenture Suspense Account is deducted from Debentures Account.

A company may have to issue debentures as a subsidiary or secondary security in addition to the principal security when it takes a loan from a bank or from other party, this is known as Issue of Debentures as Collateral Security. Collateral security is the secondary security in addition to the principal security.

A journal entry is made on the issue of debentures as a collateral security, Debentures Suspense Account is debited because no cash is received for such issue.

In this method, the debentures issued as collateral security is noted in the journal. On the asset side of the balance sheet, the Debenture Suspense account should appear. On the liability side, the Debentures should appear. The entry will get reversed once the company repays the loan to cancel it.

What is Issue of Debentures as Collateral Security? A company may have to issue debentures as a subsidiary or secondary security in addition to the principal security when it takes a loan from a bank or from other party, this is known as Issue of Debentures as Collateral Security.

In this method, the debentures issued as collateral security is noted in the journal. On the asset side of the balance sheet, the Debenture Suspense account should appear. On the liability side, the Debentures should appear. The entry will get reversed once the company repays the loan to cancel it.

Debentures if 'tangible property' (real estate, land, equipment, for example) is offered as security. Secured notes if a 'first ranking' debt over other property is offered as security. Unsecured notes no security offered.

When a debenture is secured, it's backed up by collateral. In other words, the lender receives a kind of insurance against the loan not being paid back. If the borrower defaults and can't pay off their loan, the lender can redeem what is owed by acquiring the assets belonging to the borrower.