Question

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

Answer 1

When the debentures are redeemed at a price more than their face value or par value, then it is said that the debentures are redeemed at a 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 of Debentures:

1. At the time of the Issue of the 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 a 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)