Issue of debentures - class-XII

Discount on the issue of debentures is a capital loss that is amortized over the life of the debentures, matching the expense to the period the company benefits from the borrowed funds.

When debentures are issued by the company at a price less than its nominal value (face value), it is said to be issued at discount.

A debenture is issued at a discount when the company receives less cash than the face value (par value) of the debenture.

When debentures are issued at a discount and redeemed at a premium, the total loss is debited to the Loss on Issue of Debentures account. This account represents the total cost of borrowing over the life of the debenture.

Loss on issue of debentures is a capital loss that should be amortized over the tenure of the debentures to match the expense with the benefit received.

A prospectus is the formal legal document issued by a company that invites the public to subscribe for its shares or debentures.

Debenture interest is a fixed charge against profits, meaning it must be paid regardless of whether the company makes a profit or loss, and it takes precedence over dividend payments.

It is standard practice for companies to issue debentures at a discount while agreeing to redeem them at a premium, creating a loss on issue.

The purchase consideration is Rs. 2,00,000. Since debentures are issued at a 20% discount, the issue price per debenture is Rs. 80 (100 - 20). The number of debentures issued is 2,00,000 / 80 = 2,500. The debenture account is credited with the face value: 2,500 * 100 = Rs. 2,50,000.

The issue price and redemption value frequently differ; for example, a company may issue at a discount and redeem at par, or issue at par and redeem at a premium.

Discount on issue of debentures is a loss for the company, and all losses are classified as nominal accounts.

The carrying amount of a debenture refers to its face value (the liability amount). While the issue price is lower due to the discount, the liability recorded in the books remains the face value.

The interest is calculated on the face value of the debentures. This interest amount is paid periodically, generally yearly or half-yearly. The interest is a charge against the profit of the company.

When issued at par but redeemed at a premium, the premium on redemption is a loss. The entry debits Bank and Loss on Issue, and credits Debentures and Premium on Redemption.

Debenture are financial instrument which carries a certain percentage of interest. Debentures are like other debts. Interest paid on debenture is an expense and charged to profit & loss account.

Statement A is correct because discount on issue is a capital loss. Statement B is false because the discount is typically written off over the life of the debentures.

When issued at a discount and redeemed at a premium, the total loss (discount + premium) is debited to the Loss on Issue of Debentures account. The entry credits Debentures and Premium on Redemption.

When interest is due, the company records the expense, the tax deduction (TDS), and the net amount payable to the debenture holder.

Interest on debentures is a charge against profits and, therefore, its payment is not subject to the earning of profits.The amount so deducted must be paid to the Central Government on behalf of the debenture-holders.

Loss on issue of debentures represents an expense or loss to the company, which falls under the category of nominal accounts.

To follow the matching principle, the discount on issue should be amortized over the entire period the company benefits from the borrowed funds.

Writing off the discount involves transferring the amount from the Discount on Issue account to the Profit and Loss account (as an expense).

Debentures are typically issued at par, discount, or premium, and redeemed at par or premium. 'Redeemable at discount' is not a standard or common practice for debentures.

There is no legal limit on the percentage of discount at which a company can issue debentures under most corporate laws.

Total discount = 1,00,000 * 100 * 0.05 = 5,00,000. Over 10 years, the annual write-off is 5,00,000 / 10 = 50,000.

A debenture is issued at par when the amount paid by the investor is exactly equal to the face value of the debenture.

Companies have the flexibility to issue debentures at par, at a premium, or at a discount depending on market conditions.

Premium on issue of debentures (or securities premium) can be used for various purposes, including writing off preliminary expenses, discount on issue, or goodwill.

Discount on issue of debentures is treated as a deferred revenue expenditure and is shown under miscellaneous expenses in the balance sheet until fully written off.

A discount on the issue of debentures represents a cost incurred by the company to raise capital. Since this is a non-recurring loss related to the capital structure, it is classified as a capital loss.

A debenture is issued at a premium when the amount received from the investor is greater than the nominal or face value of the debenture.

Loss on issue of debentures is an expense or loss account. According to the rules of accounting, all expenses and losses are recorded in a nominal account.

Interest on debentures is a charge against profits, meaning it must be paid regardless of whether the company earns a profit or incurs a loss.

According to the principle of prudence, if a company knows it will have to pay a premium upon redemption, it must provide for that loss at the time of issuing the debentures.

The amount payable is 100,000 - 37,000 = 63,000. The issue price per debenture is 100 + 10% = 110. Number of debentures = 63,000 / 110 = 572.72.

Debentures are a debt obligation. Redeeming them at a discount would mean paying back less than the face value, which is generally not permitted as it would be unfair to the debenture holders.

Premium received on the issue of debentures is a capital receipt, as it is not derived from the company's normal trading operations. Therefore, it is a capital profit.

The prefix (e.g., 12%) before the word 'debentures' always denotes the fixed rate of interest payable on the face value of the debentures.

Premium received on issue of debentures is capital profit, therefore, this will appear in the liabilities side of the Balance Sheet under the head 'Reserve and Surplus'.

Interest on debentures is a charge against profit, not an appropriation. Appropriations are distributions of profit (like dividends), whereas interest is an expense that must be paid regardless of profit.

Discount on issue of debentures is a capital loss because it relates to the cost of raising long-term capital rather than an operating expense.

Interest on debentures is a mandatory payment to creditors, making it a charge against profits, which must be deducted to arrive at the net profit.

Interest accrued but not due is a liability that the company owes to debenture holders, and since it is expected to be paid within the next accounting cycle, it is classified as a current liability.

The discount on the issue of debentures is a capital loss and can be written off against either capital profits or revenue profits of the company.

The name of the debenture account typically includes the rate of interest to distinguish it from other debentures issued by the company.

Purchase consideration = 2,880,000. Issue price per debenture = 80 + 10 = 90. Number of debentures = 2,880,000 / 90 = 32,000.

The first step in the sinking fund method is to determine the annual amount to be set aside using the sinking fund table, which calculates the annuity required to reach the target sum.

Similar to question 537045, the discount on the issue of debentures is a capital loss that can be written off against either capital or revenue profits.

Option A is correct.

The total discount is 6,000 (6% of 100,000). The debentures are redeemed in five installments of 20,000 each. The outstanding amounts are 100k, 80k, 60k, 40k, and 20k. The ratio is 5:4:3:2:1. Distributing 6,000 in this ratio gives 2,000, 1,600, 1,200, 800, and 400.

The premium payable on redemption is a long-term liability that the company is obligated to pay in the future, thus it is classified under Non-Current Liabilities.

Purchase consideration = 600,000. Cash paid = 10% of 600,000 = 60,000. Balance to be paid in debentures = 540,000. Issue price = 100 - 10% = 90. Number of debentures = 540,000 / 90 = 6,000.

Total amount of debentures = 500100 = Rs. 50,000
Interest at 15% for full year = Rs. 7500
Debentures issued on 1st May. So interest for 11 month from 1st May to 31st March will be debited. 
Interest for 11 Months = 7500/1211 = Rs.6875

Whenever debentures are transferred, and profit is earned it is capital profit. Hence, any capital profit should be transferred to Capital reserve, and if sinking fund exists, it should be transferred to sinking fund account. 

Debentures may be issued at par, premium, or at discount. They can also be issued for consideration other than cash or as collateral security. Debentures are said to be issue at par when face value equals the issue price of the debenture, the journal entry for such issue is as follows:

Debentures are debt instruments, and the interest rate is fixed at the time of issue. They do not carry voting rights, and interest is a charge, not an appropriation.

The interest is calculated on the face value of Rs. 4,00,000 at 12% per annum. From 1.1.06 to 31.3.06 (3 months), the interest accrued is 4,00,000 * 0.12 * (3/12) = 12,000.

The consideration is Rs. 4,00,000. Debentures of Rs. 100 are issued at 20% discount, meaning the issue price is Rs. 80. Number of debentures = 4,00,000 / 80 = 5,000. The debenture account is credited with the face value: 5,000 * 100 = 5,00,000.

Company has issued debentures at a discount of $20%$ i.e., a debenture of Rs. $100$ has been issued at Rs. $80$. But it will pay interest on face value of Rs. $100$. Therefore, effective rate of discount will be $12/80\times 100=15%$

Interest is paid half-yearly on June 30 and Dec 31. On March 31, 2006, interest for 3 months (Jan, Feb, March) has accrued but is not yet due. Interest = 20,00,000 * 15% * (3/12) = 75,000.

Interest is calculated on the face value of 10,000 * 100 = 10,00,000. The rate is 6%. Interest for the year (May 1 to March 31 is 11 months) = 10,00,000 * 0.06 * (11/12) = 55,000.

Face value = 40,000 * 100 = 40,00,000. Interest rate = 7%. Period from May 1, 2003 to March 31, 2004 is 11 months. Interest = 40,00,000 * 0.07 * (11/12) = 2,56,666.67, rounded to 2,56,667.

Consideration = 3,00,000. Issue price = 100 - 20% = 80. Number of debentures = 3,00,000 / 80 = 3,750. Debenture account is credited with face value: 3,750 * 100 = 3,75,000.

Debentures issued at discount of 20%. 
 Number of Debentures issued = 2,00,000/80
                                                     = 2500
Face Value of Debentures = Rs. 100
Debentures account would be credited with 2500*100 = Rs. 2,50,000