Issue of debentures with terms of redemption Journal Entries (Class 12)

Looking for Journal entries of issue of debentures with terms of redemption as per the syllabus of class 12 CBSE, ISC, and state Board.

This topic is concerned with the issue of debentures chapter of accountancy class 12.

I have explained this topic in detail.

What is issue of debentures from redemption point of view?

When the terms of redemption are mentioned while issuing debentures, It is termed as the issue of debentures with redemption terms.

As we already have studied in the previous lesson. The debentures can be issued, at par, at a premium, and at discount.

But as far as, repayment (redemption) of debentures is considered. The debentures can be repaid either at the par or at a premium at the end of the maturity period.

Thus there are six cases of issue of debentures with terms of redemption as follows:

Case	Condition of Issue	Condition of Redemption
1.	Issued at par	Redeemable at par
2.	Issued at discount	Redeemable at par
3.	Issued at premium	Redeemable at par
4.	Issued at par	Redeemable at premium
5.	Issued at discount	Redeemable at premium
6.	Issued at premium	Redeemable at premium

Journal entries of debentures are issued at par and are redeemable at par

In this case, the amount payable at the time of redemption is equal to its nominal (face) value. Thus, the company will not incur any loss at the time of redemption of debentures.

When issue price of Debentures received in Lumpsum:-

Only the following two entries would be passed in this case:

Bank A/c ..Dr.
To debentures Application and Allotment A/c

Debentures Application and Allotment A/c ..Dr.
To ..%Debentures A/c

Illustration:-

Raj Ltd. issued 10,00; 8% Debentures of ₹100 each, payable on application and redeemable at par after 5 years. Pass necessary entries for the issue of debentures in the books of Raj Ltd.

Solution:-

Bank A/c ..Dr. 1,00,000
To debentures Application and Allotment A/c 1,00,000
(Application money received @ ₹100 each for 50,000 debentures)

Debentures Application and Allotment A/c ..Dr. 1,00,000
To ..%Debentures A/c 1,00,000
(Application transferred to 8% Debentures Account)

Journal entries when debentures are issued at discount and are redeemable at par

Bank A/c ..Dr.
To Debentures Application and Allotment A/c

Debentures Application and Allotment A/c
Discount on issue of Debentures A/c
To ..% Debentures A/c

Journal entries when debentures are issued at premium and are redeemable at par

It means that amount payable at the time of redemption is equal to its nominal (face) value. It means the company will not incur any loss at the time of redemption of debentures. Thus, further entries besides the issue and allotment of debentures are not passed.

following are the journal entries

Bank A/c ..Dr.
To Debentures Application and Allotment A/c

Debentures Application and Allotment A/c
To ..%Debentures A/c
To Securities Premium Reserve A/c

Journal entries when debentures are issued at par and are redeemable at premium

When debentures are issued at par and are redeemable at a premium, the difference between redeemable value and the issue price is a loss for the company.

It is debited to Loss on Issue of Debentures Account at the time of allotment of debentures.

The premium payable of redemption of Debentures is recognised as a loss following the Prudence Principle of accounting.

Following are the journal entries

Bank A/c ..Dr.
To Debentures Application and Allotment A/c

Debentures Application and Allotment A/c ..Dr.
Loss on the issue of Debenture A/c ..Dr.
To ..% Debentures A/c
To Premium on Redemption of Debentures A/c

Journal entries when debentures are issued at discount and are redeemable at premium

Following are the journal entries

Bank A/c ..Dr.
To Debentures Application and Allotment A/c

Debentures Application and Allotment A/c
Discount on issue of Debenture A/c
Loss on issue of Debentures A/c
To ..%Debentures A/c
To Premium on Redemption of Debentures A/c

Journal entries when debentures are issued at premium and are redeemable at premium

Following are the Journal Entries

Bank A/c ..Dr.
To Debentures Application and Allotment A/c

Debentures Application and Allotment A/c
Loss on issue of Debentures A/c
To ..%Debentures A/c
To Securities Premium Reserve A/c
To Premium on Redemption of Debentures A/c