Accountancy · Ch 8 — Company Accounts
Issue of Debentures
Issue of Debentures
A debenture, as defined in Section 2(30) of the Companies Act, 2013, is an instrument evidencing a debt — it acknowledges that the company has borrowed money from the debenture-holder and promises to pay a fixed rate of interest, whether or not the company earns a profit, and to repay the principal on a specified redemption date. Unlike a shareholder, a debenture-holder is a creditor of the company, not a member, and ordinarily has no voting rights.
Debentures can be secured or unsecured, convertible (into equity shares) or non-convertible, and redeemable at par or at a premium; they can also be issued at par, at a premium, or — in the situations the law permits — at a discount.
Combinations at issue and at redemption
Just like shares, debentures can be issued at par, at a premium, or at a discount, and separately, redeemed at par or at a premium. This gives four common combinations seen in exam problems:
| Issued at | Redeemable at | Treatment |
|---|---|---|
| Par | Par | Simple — Bank Account debited, Debentures Account credited at face value. |
| Par | Premium | The premium payable on redemption is a future liability, credited to 'Premium on Redemption of Debentures Account'; the same amount is debited to 'Loss on Issue of Debentures Account'. |
| Discount | Par | The discount is debited to 'Loss on Issue of Debentures Account' (older problems sometimes call it 'Discount on Issue of Debentures Account'). |
| Discount | Premium | Both the discount on issue and the premium on redemption are debited together to 'Loss on Issue of Debentures Account'. |
The Loss on Issue of Debentures Account represents a capital loss; it is written off over the life of the debentures, or against the Securities Premium Account/Statement of Profit and Loss where available, rather than being treated as a revenue expense of the year of issue. …
An instrument, under Section 2(30) of the Companies Act, 2013, acknowledging a company's debt to the holder, carrying fixed interest and a …
A capital-loss account debited with the discount allowed on issue of debentures and/or the premium payable on their redemption; written off o …
A liability account credited with the premium a company commits to pay debenture-holders over face value at the …
A reserve some companies are required to create out of profits, as a safeguard for debenture-holders before debentures are redeemed; requirements are set by MCA ru …