CBSE Class 11-commerce Answered

When debentures are issued at discount and are redeemable at premium:

In this case, company will incur loss on two counts, i.e., discount allowed at the time of issue of debentures and premium payable at the time of its redemption. These losses are to be accounted at the time of issue of debentures as per the principle of prudence/ Following entries are passed:

Bank A/c      …Dr.

     To Debentures Application A/c      (application money)

Debentures Application A/c       …Dr.    (application money)

Discount on Issue of Debentures …Dr.  (discount amount)

Loss on Issue of Debentures A/c   …Dr. (premium payable on redemption)

    To % Debentures A/c                                       (nominal value)

    To Premium on Redemption of Debentures A/c (premium payable on redemption)

Instead of using 2 separate accounts for as ‘Discount on Issue of Debentures’ and ‘Premium Payable on Redemption’, one combined account can be used titled as ‘Loss on Issue of Debentures Account’. Entry will be as follows:

Debentures Application A/c    …Dr.   (application money)

Loss on Issue of Debentures A/c   …Dr.  (discount + premium)

    To % Debentures A/c                                        (nominal value)