How is ‘Discount on Issue of Debentures’ treated in the books of accounts? How will you deal with the ‘discount in issue of debentures’ when the debentures are to be redeemed in instalments?
How is ‘Discount on Issue of Debentures’ treated in the books of accounts? How will you deal with the ‘discount in issue of debentures’ when the debentures are to be redeemed in instalments?
When the debentures are issued at a price below its par value or face value, then it is said that the debentures are issued at discount. The difference between the issue price and the face value of the debenture is regarded as a capital loss. As per the Revised Schedule VI of the Companies Act, Discount on Issue of Debentures is shown in the Notes to Accounts:
1. With the amount that is to be written off within 12 months from the date of Balance Sheet - Shown under Other Current Assets
2. With the amount that is to be written off after 12 months from the date of Balance Sheet - Shown under Other Non-Current Assets
Accounting Treatment
For example, if a company has issued 10% debentures of Rs 6,00,000 at 5% discount redeemable annually by Rs 2,00,000 each year. The total amount of discount on Rs 6,00,000 debentures @ 5% is Rs 30,000, i.e. (6,00,000 × 5/100 = Rs 30,000). The accounting treatment for discount on issue of debentures(if it is to be written-off in 5 years) is:
Year 1: Amount to be written-off each year = - Shown in Statement of Profit and Loss
Amount to be written-off in the next year = 6,000 - Shown as Other Current Asset under Current Assets
Remaining Amount to be written-off after next year = - Shown as Other Non-Current Asset under Non-Current Assets
Statement of Profit and Loss
for year ended...
S. No.
Particulars
Note No.
Amount
I
Revenue from Operations
II
Other Income
III
Total Revenue (I + II)
IV
Expenses:
Amortisation Expenses (Discount on issue of debentures written-off)
6,000
Extract of Balance Sheet
as on March 31, 2013
Particulars
Note No.
Amount
(Rs)
II. Assets
1. Non-Current Assets
(e) Other Non-Current Assets
1
18,000
2. Current Assets
(f) Other Current Assets
2
6,000
NOTES TO ACCOUNTS
Note No.
Particulars
Amount
(Rs)
1
Other Non-Current Assets
Discount of Issue of Debentures
18,000
2
Other Current Assets
Discount of Issue of Debentures
6,000
Year 2
Amount to be written-off = - Shown in Statement of Profit and Loss
Amount to be written-off in the next year = 6,000 - Shown as Other Current Asset under Current Assets
Remaining Amount to be written-off after next year = - Shown as Other Non-Current Asset under Non-Current Assets
At the end of Year 5, the amount of discount on issue of debentures will be completely written off.
When the debentures are issued at a price below its par value or face value, then it is said that the debentures are issued at discount. The difference between the issue price and the face value of the debenture is regarded as a capital loss. As per the Revised Schedule VI of the Companies Act, Discount on Issue of Debentures is shown in the Notes to Accounts:
1. With the amount that is to be written off within 12 months from the date of Balance Sheet - Shown under Other Current Assets
2. With the amount that is to be written off after 12 months from the date of Balance Sheet - Shown under Other Non-Current Assets
For example, if a company has issued 10% debentures of Rs 6,00,000 at 5% discount redeemable annually by Rs 2,00,000 each year. The total amount of discount on Rs 6,00,000 debentures @ 5% is Rs 30,000, i.e. (6,00,000 × 5/100 = Rs 30,000). The accounting treatment for discount on issue of debentures(if it is to be written-off in 5 years) is:
Year 1: Amount to be written-off each year = - Shown in Statement of Profit and Loss
Amount to be written-off in the next year = 6,000 - Shown as Other Current Asset under Current Assets
Remaining Amount to be written-off after next year = - Shown as Other Non-Current Asset under Non-Current Assets
| Statement of Profit and Loss for year ended... |
|||
| S. No. | Particulars | Note No. | Amount |
| I | Revenue from Operations | ||
| II | Other Income | ||
| III | Total Revenue (I + II) | ||
| IV | Expenses: | ||
| Amortisation Expenses (Discount on issue of debentures written-off) | 6,000 | ||
|
Extract of Balance Sheet
as on March 31, 2013
|
||
| Particulars | Note No. | Amount (Rs) |
| II. Assets | ||
| 1. Non-Current Assets | ||
|
(e) Other Non-Current Assets
|
1 | 18,000 |
| 2. Current Assets | ||
|
(f) Other Current Assets
|
2 | 6,000 |
NOTES TO ACCOUNTS
| Note No. | Particulars | Amount (Rs) |
| 1 | Other Non-Current Assets | |
| Discount of Issue of Debentures | 18,000 | |
| 2 | Other Current Assets | |
| Discount of Issue of Debentures | 6,000 |
Year 2
Amount to be written-off = - Shown in Statement of Profit and Loss
Amount to be written-off in the next year = 6,000 - Shown as Other Current Asset under Current Assets
Remaining Amount to be written-off after next year = - Shown as Other Non-Current Asset under Non-Current Assets
At the end of Year 5, the amount of discount on issue of debentures will be completely written off.
