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

(a) Issued at par – redeemable at par; Notes
(b) Issued at discount – redeemable at par;
(c) Issued at premium – redeemable at par;
(d) Issued at par - redeemable at premium;

(e) Issued at a discount – redeemable at premium;
(f) Issued at premium - redeemable at premium;
It may be noted that in the above mentioned six possibilities, the debentures can be redeemed at
a discount and this situation is possible only when the terms and conditions of redemption are
laid down in advance. When the debentures are to be redeemed at a discount, amount payable
at the time of redemption will be less than the face value of debentures resulting in a gain.
However, as per the accounting convention of conservatism expected losses are to be taken into
account but not expected gains. Therefore, there is no change in the journal entries passed. Thus
journal entries for issue of debentures in the case of redemption at a discount are similar to
journal entries for issue of debentures when redemption is at par.

7.7 Keywords

Debenture: It is a document that either creates a debt or acknowledges it, and it is a debt without
collateral. In corporate finance, the term is used for a medium- to long-term debt instrument
used by large companies to borrow money.
Discount on Issue of Debentures: It is a capital loss and therefore must be written off as early as
possible.
Debentures Issued at Premium: Debentures are said to be issued at premium when these are
issued at a value which is more than their nominal value.

Deferred Revenue Expenditure: It can be written off against capital reserve or share premium.
The unwritten off balance of this account should be treated as deferred revenue expenditure.
Debentures Issued at Discount: When debentures are issued at less than their nominal value they
are said to be issued at discount.
Issue of Debentures: By issuing debentures means issue of a certificate by the company under its
seal which is an acknowledgement of debt taken by the company.

7.8 Review Questions

1. For how many considerations the debentures can be issued?
2. What do you mean by issue of debenture as collateral securities? Give its accounting
treatment.
3. Explain the following terms:
(a) Loss on Issue of Debentures.
(b) Interest on own Debentures.

Practical questions:
4. Show by the means of journal entries the followings, at the time of issue on 1st January
2006.

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