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Question
How would you deal with ‘Premium on Redemption of Debentures’?
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Solution
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:
- At the time of the Issue of the debenture:
|
Bank/Debenture Allotment A/c |
Dr. |
|
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Loss on issue of Debenture A/c |
Dr. |
|
|
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To Debenture A/c |
|
|
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To Premium on Redemption |
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(Debenture issued with the term of redemption at premium) |
||
- At the time of Redemption of Debentures:
|
Debenture A/c |
Dr. |
|
|
Premium on Redemption A/c |
Dr. |
|
|
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To Debenture Holder A/c |
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(Amount of debentures due to debenture holders) |
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