Explain the different terms for the issue of debentures with reference to their redemption.
Explain the different terms for the issue of debentures with reference to their redemption.
The different terms for the issue of debentures with reference to their redemption can be the combinations of at par, at premium and at discount. Normally, the debentures are not redeemable at discount. The permutation and the combination of the various terms of issue and redemption of debentures give rise to following six situations:
1. Issue at Par, Redeemable at Par.
2. Issue at Premium, Redeemable at Par.
3. Issue at Discount, Redeemable at Par.
4. Issue at Par, Redeemable at Premium.
5. Issue at Premium, Redeemable at Premium.
6. Issue at Discount Redeemable at Premium.
1. Issue at Par and Redeemable at Par- When the debentures are issued and are redeemed at their face value, then the following Journal entry is passed.
Bank A/c
Dr. (with the amount received)
To Debenture Application A/c
(with the face value)
(Debenture Application money received)
Debenture Application A/c
Dr.
To Debenture A/c
(Application money transferred to Debenture Account)
2. Issue at Premium and Redeemable at Par- When the debentures are issued at premium and are redeemable at par, then the following Journal entry is passed. As premium is a gain for a company so it is credited in the Journal entry.
Bank A/c
Dr.
To Debenture Application A/c
(Debenture Application money received)
Debenture Application A/c
Dr.
To Debenture A/c
To Securities Premium A/c
(Debentures issued at premium and redeemable at par)
3. Issue at Discount and Redeemable at Par- When the debentures are issued at discount and are redeemable at par, then the following Journal entry is passed. As discount is a loss for a company so it is debited in the Journal entry.
Bank A/c
Dr.
To Debenture Application A/c
(Debenture Application money received)
Debenture Application A/c
Dr.
Discount on Issue of Debenture A/c
Dr.
To Debenture A/c
(Debentures issued at discount and redeemable at par)
4. Issue at Par and Redeemable at Premium- When debentures are issued at par and redeemable at premium, then the following Journal entry is passed. In such case, the company did not suffer any loss at the time of issue but there will be loss at the time of redemption.
Bank A/c
Dr.
To Debenture Application A/c
(Debenture Application money received)
Debenture Application A/c
Dr.
Loss on Issue of Debenture A/c
Dr. (with the amount of premium on redemption)
To Debenture A/c
(with the face value of the debentures)
To Premium on Redemption of Debenture A/c
(with the amount of premium on redemption)
(Debentures issued at par and redeemable at premium)
5. Issued at Premium and Redemption at Premium- When the debentures are issued and redeemable at premium, then the following Journal entry is passed.
Bank A/c
Dr.
To Debenture Application A/c
(Debenture Application money received)
Debenture Application A/c
Dr.
Loss on Issue of Debenture A/c
Dr. (with the amount of premium on redemption)
To Debenture A/c
(with the face value of the debentures)
To Securities Premium A/c
(with the amount of premium on issue)
To Premium on Redemption of Debenture A/c
(with the amount of premium on redemption)
(Debentures issued at premium and redeemable at
premium)
6. Issue of Discount and Redemption at Premium- When the debentures are issued at discount and redeemable at premium, then the following Journal entry is passed.
Bank A/c
Dr.
To Debenture Application A/c
(Debenture Application money received)
Debenture Application A/c
Dr.
Loss on Issue of Debenture A/c
Dr. (with the amount of discount on issue plus amount of premium on redemption)
To Debenture A/c
(with the face value of the debentures)
To Premium on Redemption of Debenture A/c
(with the amount of premium on redemption)
(Debentures issued at discount and redeemable at
premium)
The different terms for the issue of debentures with reference to their redemption can be the combinations of at par, at premium and at discount. Normally, the debentures are not redeemable at discount. The permutation and the combination of the various terms of issue and redemption of debentures give rise to following six situations:
1. Issue at Par, Redeemable at Par.
2. Issue at Premium, Redeemable at Par.
3. Issue at Discount, Redeemable at Par.
4. Issue at Par, Redeemable at Premium.
5. Issue at Premium, Redeemable at Premium.
6. Issue at Discount Redeemable at Premium.
1. Issue at Par and Redeemable at Par- When the debentures are issued and are redeemed at their face value, then the following Journal entry is passed.
|
Bank A/c |
Dr. (with the amount received) |
|
|
|
To Debenture Application A/c |
(with the face value) |
|
(Debenture Application money received) |
|
|
|
Debenture Application A/c |
Dr. |
|
|
|
To Debenture A/c |
|
|
(Application money transferred to Debenture Account) |
|
|
2. Issue at Premium and Redeemable at Par- When the debentures are issued at premium and are redeemable at par, then the following Journal entry is passed. As premium is a gain for a company so it is credited in the Journal entry.
|
Bank A/c |
Dr. |
|
|
|
To Debenture Application A/c |
|
|
(Debenture Application money received) |
|
|
|
Debenture Application A/c |
Dr. |
|
|
|
To Debenture A/c |
|
|
|
To Securities Premium A/c |
|
|
(Debentures issued at premium and redeemable at par) |
|
|
3. Issue at Discount and Redeemable at Par- When the debentures are issued at discount and are redeemable at par, then the following Journal entry is passed. As discount is a loss for a company so it is debited in the Journal entry.
|
Bank A/c |
Dr. |
|
|
|
To Debenture Application A/c |
|
|
(Debenture Application money received) |
|
|
|
Debenture Application A/c |
Dr. |
|
|
Discount on Issue of Debenture A/c |
Dr. |
|
|
|
To Debenture A/c |
|
|
(Debentures issued at discount and redeemable at par) |
|
|
4. Issue at Par and Redeemable at Premium- When debentures are issued at par and redeemable at premium, then the following Journal entry is passed. In such case, the company did not suffer any loss at the time of issue but there will be loss at the time of redemption.
|
Bank A/c |
Dr. |
|
|
|
To Debenture Application A/c |
|
|
(Debenture Application money received) |
|
|
|
Debenture Application A/c |
Dr. |
|
|
Loss on Issue of Debenture A/c |
Dr. (with the amount of premium on redemption) |
|
|
|
To Debenture A/c |
(with the face value of the debentures) |
|
|
To Premium on Redemption of Debenture A/c |
(with the amount of premium on redemption) |
|
(Debentures issued at par and redeemable at premium) |
|
|
5. Issued at Premium and Redemption at Premium- When the debentures are issued and redeemable at premium, then the following Journal entry is passed.
|
Bank A/c |
Dr. |
|
|
|
To Debenture Application A/c |
|
|
(Debenture Application money received) |
|
|
|
Debenture Application A/c |
Dr. |
|
|
Loss on Issue of Debenture A/c |
Dr. (with the amount of premium on redemption) |
|
|
|
To Debenture A/c |
(with the face value of the debentures) |
|
|
To Securities Premium A/c |
(with the amount of premium on issue) |
|
|
To Premium on Redemption of Debenture A/c |
(with the amount of premium on redemption) |
|
(Debentures issued at premium and redeemable at premium) |
|
|
6. Issue of Discount and Redemption at Premium- When the debentures are issued at discount and redeemable at premium, then the following Journal entry is passed.
|
Bank A/c |
Dr. |
|
|
|
To Debenture Application A/c |
|
|
(Debenture Application money received) |
|
|
|
Debenture Application A/c |
Dr. |
|
|
Loss on Issue of Debenture A/c |
Dr. (with the amount of discount on issue plus amount of premium on redemption) |
|
|
|
To Debenture A/c |
(with the face value of the debentures) |
|
|
To Premium on Redemption of Debenture A/c |
(with the amount of premium on redemption) |
|
(Debentures issued at discount and redeemable at premium) |
|
|
