— Kishore V, SME and ACW at Edumarz
- Debentures can be issued at par, premium, or discount, and they can also be redeemed at par, premium, or discount.
Debentures can never be redeemed at a lower price.
The six scenarios in which debentures can be issued for redemption are as follows.
(i) The following Journal entry is passed when the debentures are issued and redeemed at face value.
Date | Particulars | L.F | Debit | Credit |
Bank A/c Dr To Debenture Application A/c (Debentures application money received) |
Date | Particulars | L.F | Debit | Credit |
Debenture Application A/c Dr To Debentures A/c (Debentures application money transferred to debentures account)
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When debentures are issued at premium and redeemed at par, the following Journal entry is passed. Premium is acknowledged in the Journal entry since it is a profit for the firm.
Date | Particulars | L.F | Debit | Credit |
Bank A/c Dr To Debenture Application A/c (Debentures application money received) |
Date | Particulars | L.F | Debit | Credit |
Debenture Application A/c Dr To Debentures A/c To Securities Premium A/c (Debentures issued at premium and redeemable at par)
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When debentures are issued at a discount and redeemed at par, the following Journal entry is passed. Discount is deducted in the journal entry since it is a loss for the firm.
Date | Particulars | L.F | Debit | Credit |
Bank A/c Dr To Debenture Application A/c (Debentures application money received) |
Date | Particulars | L.F | Debit | Credit |
Debenture Application A/c Dr Discount on Issue of Debentures A/c Dr To Debentures A/c (Debentures issued at discount and redeemable at par)
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When debentures are issued at par and redeemed at premium, the following Journal entry is passed. In this situation, the corporation did not lose money when the bonds were issued, but it will lose money when they are redeemed.
Date | Particulars | L.F | Debit | Credit |
Bank A/c Dr To Debenture Application A/c (Debentures application money received) |
Date | Particulars | L.F | Debit | Credit |
Debenture Application A/c Dr Loss on Issue of Debentures A/c Dr To Debentures A/c To Premium on Redemption of Debentures A/c (Debentures issued at par and redeemable at premium)
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(v) Issued at Premium and Redemption at Premium – The following Journal entry is passed when the debentures are issued and redeemable at premium.
Date | Particulars | L.F | Debit | Credit |
Bank A/c Dr To Debenture Application A/c (Debentures application money received) |
Date | Particulars | L.F | Debit | Credit |
Debenture Application A/c Dr Discount on Issue of Debentures A/c Dr To Debentures A/c (Debentures issued at discount and redeemable at par)
|
Date | Particulars | L.F | Debit | Credit |
Debenture Application A/c Dr Loss on Issue of Debenture A/c Dr To Debentures A/c To Securities Premium A/c To Premium on Redemption of Debenture A/c (Debentures issued at premium and redeemable at premium) |
(vi) Issue at Discount and Redemption at Premium – The following Journal entry is passed when the debentures are issued at discount and redeemed at premium.
Date | Particulars | L.F | Debit | Credit |
Bank A/c Dr To Debenture Application A/c (Debentures application money received)
|
Date | Particulars | L.F | Debit | Credit |
Debenture Application A/c Dr Loss on Issue of Debenture A/c Dr To Debentures A/c To Premium on Redemption of Debenture A/c (Debentures issues at discount and redeemable at premium)
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