What is meant by ‘Issue of debenture at discount and redeemable at premium?
What is meant by ‘Issue of debenture at discount and redeemable at premium?
When debentures are issued below its par value (or the face value) but are redeemed at price higher than its par value, then it is termed as issue of debenture at discount and redeemable at premium. The difference between the issue price and the redemption price is treated as loss on issue of debenture.
Example:
A 10% debenture of Rs 1,000 is issued at 5% discount and is redeemed at 10% premium.
Bank A/c
Dr.
950
Discount on Issue of Debenture A/c
Dr.
50
Loss on Issue of Debenture A/c
Dr.
100
To Debenture A/c
1,000
To Debenture Redemption Premium A/c
100
(Debenture issued)
Total loss = Payment made at redemption – Amount received on issue of debenture
1,100 – 950 = Rs 150
When debentures are issued below its par value (or the face value) but are redeemed at price higher than its par value, then it is termed as issue of debenture at discount and redeemable at premium. The difference between the issue price and the redemption price is treated as loss on issue of debenture.
Example:
A 10% debenture of Rs 1,000 is issued at 5% discount and is redeemed at 10% premium.
|
Bank A/c |
Dr. |
950 |
|
|
|
Discount on Issue of Debenture A/c |
Dr. |
50 |
|
|
|
Loss on Issue of Debenture A/c |
Dr. |
100 |
|
|
|
|
To Debenture A/c |
|
|
1,000 |
|
|
To Debenture Redemption Premium A/c |
|
|
100 |
|
(Debenture issued) |
|
|
|
|
Total loss = Payment made at redemption – Amount received on issue of debenture
1,100 – 950 = Rs 150
