What is the Issue of Debentures?
The issue of Debentures seems to be much alike to the issue of shares by an enterprise. Here, the money can be accumulated either in round sum or in installments. The accounting treatment of the 2 is quite alike. Now, the debentures can be either issued for some other considerations or cash. Often issue or circulation of debentures is done as collateral security.
The issue of Debentures for Cash
Debentures in accustomed progress of the business concern are circulated for cash. Circulation of debentures that occurs can be categorised into 3 types, like the issue of shares at a discount, at a premium and at par.
The issue of Debentures at Discount
When the debentures are circulated below the face value, this type of circulation of debentures is called a discount issue. Say, for instance, the debenture possesses a nominal value of 200/- but is issued for 190/-. This type of debentures is known to be issued at a discount.
During the debentures’ life, the discount amount is being written off by debiting it to the Profit and Loss account. This can be charged on the Capital Profits of the enterprise. Discount on issue of debentures is contemplated as a capital loss and classified under ‘Miscellaneous Expenses’ on the asset side of the balance sheet (B/S) until it is written off.
The issue of Debentures at Premium
The issue of debentures at a premium is when the money is charged more than the nominal value. The premium amount charged to a special a/c is known as Securities Premium Reserve A/c. This account shall be depicted on the liabilities side of the Balance Sheet below the heading Reserves and Surplus. So, if a debenture with a face value of 200/- is sold at 210/- then it is circulated at a premium.
The above mentioned is the concept, that is elucidated in detail about the Issue of Debentures for the class 12 Commerce students. To know more, stay tuned to BYJU’S.