Issue of Debentures at a Discount

When a debenture is issued at a price lower than its face value (nominal value), it is called an issue at a discount. For instance, issuing a ₹100 debenture for ₹95 means a discount of ₹5 per debenture. The discount is a capital loss for the company, and it is written off over the life of the debentures.

The discount can be written off by debiting either the Securities Premium Reserve account (if the company has such a reserve) or the Statement of Profit and Loss. Until it is written off, the discount is carried as a fictitious asset: the amount to be written off within 12 months of the balance sheet date (or within the operating cycle) is shown under Other Current Assets, and the portion to be written off after 12 months is shown under Other Non-Current Assets.

The Companies Act, 2013 does not impose any restrictions on issuing debentures at a discount.

---

Accounting Treatment

The key journal entries for issue at a discount are:

1. On receipt of application money (if collected in instalments):

   • Debit: Bank A/c
   • Credit: Debenture Application A/c

2. On transfer of application money to debentures account:

   • Debit: Debenture Application A/c
   • Credit: Debenture A/c

3. On allotment (when the remaining amount and discount are accounted for):

   • Debit: Debenture Allotment A/c (with the amount due on allotment)
   • Debit: Discount on Issue of Debentures A/c (with the total discount amount)
   • Credit: Debenture A/c (with the total face value of debentures issued)

4. On receipt of allotment money:

   • Debit: Bank A/c
   • Credit: Debenture Allotment A/c …