In this topic
Learning outcomes
- Explain the relevant accounting rule and terminology.
- Prepare a correctly classified calculation or statement.
- Show working notes and verify the debit-credit or balance check.
Key vocabulary
Concepts to know
A company’s written acknowledgement of debt, generally carrying stated interest.
Amount payable above face value on redemption; recognise the obligation at issue when required.
Additional security for a loan; account for it using the method required by the question.
Issue discount plus premium payable on redemption, subject to the terms and treatment specified.
Core notes
Issue terms and journal logic
Debentures may be issued at par, premium or discount and may be redeemable at par or premium. Calculate cash proceeds from issue price and the liability from face value and redemption terms. If issue discount and redemption premium create a loss, debit Loss on Issue of Debentures and write it off as required by the question/syllabus.
When issued for consideration other than cash, debit the asset/vendor account at the agreed value and credit Debentures and any premium/discount components. Under collateral-security method, no journal entry is recorded for the security itself; disclose it in notes. Under the alternative method, record the specified entry and contra account.
Core notes
Interest and tax scope
Interest expense is calculated on nominal value for the time outstanding, not on issue proceeds. The current CBSE syllabus excludes TDS treatment. Record interest expense and liability/payment as specified. Redemption entries remove the debenture liability and record the amount paid, including any premium.
When interest has accrued but is unpaid at the reporting date, recognise the expense and liability for the amount relating to the period, subject to the question's instructions. On redemption, debit Debentures for face value and Premium on Redemption for any additional amount payable; credit Bank for the total paid. The journal entry should remove the liability in full.
Keep three amounts distinct in every problem: nominal value (used to calculate interest), issue price (cash or other consideration received), and redemption price (amount due at repayment). A discount on issue reduces proceeds; a premium on redemption increases the repayment obligation. Neither changes the nominal amount on which stated interest is normally calculated.
Worked example
Step-by-step illustration
Illustration: 1,000 debentures of ₹100 each are issued at ₹98 and redeemable at ₹105. Face value = ₹1,00,000; cash received = ₹98,000; redemption premium = ₹5,000; total loss on issue = ₹2,000 discount + ₹5,000 redemption premium = ₹7,000.
| Journal entry | Dr (₹) | Cr (₹) |
|---|---|---|
| Bank A/c Dr. Loss on Issue of Debentures A/c Dr. To 10% Debentures A/c To Premium on Redemption A/c | 98,000 7,000 | 1,00,000 5,000 |
Board preparation
Original practice questions
- Calculate issue proceeds and loss when issue discount and redemption premium are both present.
- Pass the entry for debentures issued to a vendor for machinery.
- Explain the collateral-security method and its disclosure.
Use a four-column calculation: face value, issue proceeds, redemption amount and loss/premium. Check journal totals and calculate interest on face value.
These are original practice questions, not claimed previous-year questions. Follow the exact method and rounding instructions in your prescribed text and school guidance.
Current syllabus
How this topic fits the course
Accounting for Companies is part of the CBSE Class XII Accountancy course structure. Computerised Accounting is an alternative to Financial Statement Analysis, not an additional compulsory unit.
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