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Unit 7: Debentures: Conditions of Issue of Debentures from Redemption Point of View

7.1 Meaning Notes

Sometimes, debentures are issued with specific conditions on which the redemption of debenture
is made by the company. There can be the following five possibilities for redemption:

Possibility Condition of Issue Condition of Redemption
1 Issued at par Redeemable at par
2 Issued at premium Redeemable at par
3 Issued at discount Redeemable at par
4 Issued at par Redeemable at premium
5 Issued at discount Redeemable at premium

It may be noted that the debentures can be issued at par, at premium, or at discount, but redemption
will be either at par or at premium. This is possible only when the condition of redemption of
debentures is made in advance by the company. If a company redeems its debentures by
purchasing them from the open market at a price below the par value the, difference (par value
and purchase price) is treated as profit on redemption or redemption of debentures at discount.

The following journal entries are made at the time of issue of debentures for the above conditions:
1. When debentures are issued at par and redeemable at par:
Bank Account Dr.
(face value of debentures)

To Debentures Account
2. When debentures are issued at premium and redeemable at par:
Bank Account Dr.
(amount received)

To Debenture Account (face value of debentures)
To Debenture Premium Account (amount of premium)
3. When debentures are issued at discount and redeemable at par:
Bank Account Dr.

(with amount received)
Discount on Issue of Debentures Account Dr.
(discount allowed)
To Debentures Account (face value of debentures)

4. When debentures are issued at par and redeemable at premium:
Bank Account Dr.
(with amount received)
Loss on Issue of Debentures Account Dr.

(amount of premium payable in redemption)
To Debentures Account (Face value of debentures)
To Premium on Redemption of Debentures Account (premium on redemption)

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