Question

What is meant by ‘Premium on Redemption of Debentures’?

Answer 1

When the debentures are redeemed at a price more than its face value or the par value, then it is said that the debentures are redeemed at premium. The difference between the redeemed price and the par value is regarded as a capital loss and this loss is written off till the redemption of the debentures. The Premium on Redemption of Debenture is shown in the Notes to Accounts under the sub-head of 'Other Long-term Liabilities'. The final balance is shown under the main head of 'Non-Current Liabilities' on the Equity and Liabilities side of the Company's Balance Sheet.

Accounting Treatment for Premium on Redemption on Debentures:

1. At the time of the Issue of Debenture:

Bank/Debenture Allotment A/c		Dr.
Loss on Issue of Debenture A/c		Dr.
	To Debenture A/c
	To Premium on Redemption
(Debenture issued with the term of redemption at premium)

2. At the time of Redemption of Debentures:

Debenture A/c		Dr.
Premium on Redemption A/c		Dr.
	To Debentureholder A/c
(Amount of debentures due to debentureholders)