# 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? - Accountancy

Numerical

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?

#### Solution

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 = 30,000 × 15=6,000"> Shown in Statement of Profit and Loss
Amount to be written-off in the next year = 6,000 - Shown as Other Current Assetunder Current Assets
Remaining Amount to be written-off after next year = 30,000 - 6,000 - 6,000= 18,000"> Shown as Other Non-Current Assetunder Non-Current Assets

 Statement of Profit and Lossfor 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 =  30,000 xx (1/5) = 6,000- 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 = 18000 - 6000 = 12000` - 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.
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#### APPEARS IN

NCERT Class 12 Accountancy - Company Accounts and Analysis of Financial Statements
Chapter 2 Issue and Redemption of Debentures
Long Answer Question | Q 4 | Page 135