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Accountancy · Ch 6 — Issue and Redemption of Debentures

Debentures issued at Premium

6.4.3

Debentures issued at Premium

When a debenture is issued at a price higher than its face value, the excess is called the premium. For instance, if a ₹100 debenture is issued for ₹110, the extra ₹10 is the premium. The premium is not revenue — it is a capital receipt that belongs to the company's shareholders. It must be credited to a separate account called Securities Premium Reserve Account, which appears on the liabilities side of the balance sheet under the head "Reserves and Surpluses".

The accounting treatment for the premium is straightforward: at the time the premium becomes due (usually on allotment), the Securities Premium Reserve Account is credited. The corresponding debit goes to the Debenture Allotment Account (or whichever call includes the premium). The face value of the debentures is always credited to the Debentures Account at par (₹100 each), regardless of the issue price.

Important

The Debentures Account is always credited with the face value of the debentures. The premium is never added to this account — it goes to a separate reserve.

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