Issuance of 500, 6% Debentures at Par with a Premium of 10%

Introduction:
Debentures are long-term debt instruments issued by companies to raise funds from the public. They are similar to bonds but are not secured by any specific assets of the company. In this case, a company issued 500 debentures at a face value of Rs 500 each, with a coupon rate of 6% and a premium of 10%.

Explanation:
The issuance of 500, 6% debentures at par with a premium of 10% involves the following steps:

Step 1: Determining the Face Value:
The face value of the debentures is set at Rs 500 each. This represents the principal amount that will be repaid to the debenture holders at the time of redemption.

Step 2: Calculating the Premium:
The premium is the amount by which the face value of the debentures exceeds the issue price. In this case, the premium is 10% of the face value, which is Rs 50 per debenture (10% of Rs 500).

Step 3: Calculating the Issue Price:
The issue price is the sum of the face value and the premium. Therefore, the issue price of each debenture is Rs 550 (Rs 500 + Rs 50).

Step 4: Determining the Coupon Rate:
The coupon rate is the annual interest rate paid to the debenture holders. In this case, it is set at 6% of the face value, which is Rs 30 per debenture (6% of Rs 500).

Step 5: Calculating the Total Amount Raised:
To determine the total amount raised through the issuance of debentures, we multiply the number of debentures by the issue price. In this case, the total amount raised is Rs 275,000 (500 debentures x Rs 550).

Step 6: Recording the Transaction:
The company must record the issuance of debentures in its financial statements. The debentures will be classified as long-term liabilities on the balance sheet.

Step 7: Payment of Interest:
The company is required to pay interest to the debenture holders at the specified coupon rate. In this case, the company will pay Rs 30 as interest per debenture annually.

Step 8: Redemption of Debentures:
At the time of redemption, the company will repay the face value of the debentures to the debenture holders. In this case, the face value is Rs 500 per debenture.

Conclusion:
By issuing 500 debentures at a face value of Rs 500 each, with a coupon rate of 6% and a premium of 10%, the company was able to raise Rs 275,000 in funds. The debentures will be recorded as long-term liabilities on the company's balance sheet, and the company will be required to pay interest to the debenture holders annually. At the time of redemption, the face value of the debentures will be repaid to the debenture