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Question
What is meant by ‘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:
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Bank/Debenture Allotment A/c |
Dr. |
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Loss on Issue of Debenture A/c |
Dr. |
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|
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To Debenture A/c |
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|
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To Premium on Redemption |
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(Debenture issued with the term of redemption at a premium) |
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- At the time of Redemption of Debentures:
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Debenture A/c |
Dr. |
|
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Premium on Redemption A/c |
Dr. |
|
|
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To Debentureholder A/c |
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(Amount of debentures due to debentureholders) |
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Short Answer Question
Under which head is the ‘Debenture Redemption Reserve’ shown in the Balance Sheet?
Explain the guidelines of SEBI for creating the Debenture Redemption Reserve.
Can a company purchase its own debentures in the open market? Explain.
X.Ltd. purchased a Machinery from Y. Ltd. at an agreed purchase consideration of Rs. 4,40,000 to be satisfied by the issue of 12% debentures of Rs. 100 each at a premium of Rs 10 per debenture. Journalise the transactions.
A company issued debentures of the face value of Rs 5,00,000 at a discount of 6% on April 01, 2012. These debentures are redeemable by annual drawings of Rs,1,00,000 made on March 31 each year. The directors decided to write off discount based on the debentures outstanding each year.
Calculate the amount of discount to be written-off each year. Give journal entries also.
Krishna Ltd. had outstanding 20,000, 9% debentures of ₹ 100 each on 1st April 2014. These debentures were redeemable at a premium of 10% in two equal installments starting from 31st March 2018. The company had a balance of ₹ 4,00,000 in Debenture Redemption Reserve on 31st March 2017. Pass necessary journal entries for the redemption of debentures in the books of Krishna Ltd. for the year ended 31st March 2018.
Convertible debentures cannot be issued at a discount if ______.
Own debentures are those debentures of the company which ______.
Profit on cancellation of own debentures is transferred to ______.
Which of the following given statement is correct.
Statement 1 - "Bond and debentures are same in terms of contents and texture."
Statement 2 - "Bond and debentures are not same in terms of contents and texture."
Consider the following statements.
Statement 1 - "No DRR is required for debentures issued by All India Financial Institutions, regulated by RBI and Banking Companies for both public as well as privately placed debentures".
Statement 2 - DRR is required for debentures issued by All India Financial Institutions, regulated by RBI and Banking Companies for both public as well as privately placed debentures"
According to SEBI guidelines, what percentage of the amount of debentures must be transferred to Debenture Redemption Reserve, before the commencement of redemption of debentures, in the case of convertible debentures?
Debentures can be redeemed out of:
Which of the following is not true about Debenture Redemption Reserve (DRR)?
Premium on Redemption of Debentures Account is a ______.
