Edumarz

How would you deal with ‘Premium on Redemption of Debentures?

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— Kishore V, SME and ACW at Edumarz

Debentures redeemed at a premium are those that are redeemed for a price higher than their par value or nominal value

A capital loss is a difference between the par value (face value) and the price at which it is redeemed, and it is written off until the debentures are redeemed. 

Until the debentures are redeemed, it is displayed on the liabilities section of the balance sheet

The accounting treatment looks like this:
At the time of the Debenture Issue

Particulars

Bank/Debenture Allotment A/c Dr

Loss on Issue of Debenture A/c Dr

To Debentures A/c

L.F

Debit

Credit

To Premium on Debenture A/c Redemption (Debentures are issued with a redeemable at premium term)

For the Loss It was written off.

Particulars

Profit and Loss A/c Dr

To Loss on Issue of Debenture A/c

(Loss on issued of debenture written off)

L.F

Debit

Credit

At the time of Redemption of Debentures

Particulars

Debentures A/c Dr

Premium on Redemption A/c Dr

To Debentures Holders A/c

(Amount of debenture due to debenture holders)

 

L.F

Debit

Credit



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