Issue of Debentures Notes4

Study Material & Notes for the Chapter 9

COMPANY - ISSUE OF DEBENTURES

IV.  ISSUE OF DEBENTURES FROM REDEMPTION POINT OF VIEW

  • Redemption of debentures means repayment of the amount of debentures by company
  • Debentures can be issued at Par, Premium or Discount
  • Debentures can be redeemed at Par or Premium
  • Hence there are six combination possible as depicted in the figure below
debenture issue 4_1.1
2. Debentures issued at Premium and Redeemable at Par
(Issued at Rs. 125/- and Redeemed at Rs. 100/-)
3. Debentures issued at Discount and Redeemable at Par
(Issued at Rs. 95/- and Redeemed at Rs. 100/-)

Discount on issue of debentures is netted off from Securities Premium Reserve (if  it exists) or from the Statement of Profit & Loss Account in the year debentures are allotted

4. Debentures issued at Par and Redeemable at Premium
(Issued at Rs. 100/- and Redeemed at Rs. 110/-)

The liability of Premium on redemption arises the time of redemption of debentures.  Being a known lability, following the prudence concept it is recorded on allotment of debentures itself

5. Debentures issued at Premium and Redeemable at Premium
(Issued at Rs. 125/- and Redeemed at Rs. 110/-)
6. Debentures issued at Discount and Redeemable at Premium
(Issued at Rs. 95/- and Redeemed at Rs. 110/-)
Disclosure in the Balance Sheet
Case-A Debentures are due for redemption after 12 months/operating cycle from the Balance Sheet date Balance Sheet
  • Debentures will be shown under the heading ‘Long-term Borrowing’
  • Premium on Redemption of Debentures will be shown under the heading ‘Other Long-term Liabilities’
Case-B Debentures are due for redemption within 12 months/operating cycle from the Balance Sheet date
  • Debentures will be shown under the heading ‘Short-term Borrowing’
  • Premium on Redemption of Debentures will be shown under the heading ‘Other Current Liabilities’