Accounting Entry (Issue of Debenture) Video Lecture - Commerce

when debentures are issued at a premium
for a discount
the profit premium being the profit the
discount being the loss is both
immediately accounted for but when there
is a Redemption and the redemption is at
a premium this is a loss which the
company knows in advance the company
knows that five years from now the
debentures have to be redeemed at the
premium which means five years from now
there is going to be a loss on account
of premium on Redemption so the company
must make a provision for it at the time
of issue itself however if redemption is
at a discount this is a discount which
may arise in the future it is a profit
which may arise in the future discount
on redemption of the ventures discount
on Redemption would be a profit but this
if it arises you will arise only in the
future or would be realized only in the
future we followed the conservatism
concept and provide for all losses if
anticipated but do not provide for
anticipated profits profits are booked
only when actually realized only when
actually earned so what happens is when
we pass accounting entries for issue of
debentures we consider we provide for
loss on redemption if any loss on
redemption arises only due to premium on
redemption of aventures let us look at
the accounting entries with this these
principles in fact
first if debentures are issued at par
the difference in radios here where the
dimensions are issued at par the issue
price is 100 and the redemption however
one is at par 2 is at a discount and 3
is at a premium so the ventures are
issued at par issued at 100 but they are
redeemable either at par or at a
discount or at opinion what would be
deep accounting and cheese
considering that these terms of
redemption are included in our Terms of
issue for a quick understanding let me
just mention that the entries for issue
of aventures is similar to an entry for
issue of shares only if the ventures are
redeemed at a premium there is an
additional entry which is passed that is
loss on issue of the ventures account
debit to premium on redemption of
debentures to premium on redemption of
the ventures the entries for issue of
aventures is just the same as that for
entry on issue of shares except that
instead of share capital recent
adventures and the only addition to
those entries are that if the debentures
are redeemable at a premium we add to
that entry loss on issue of the venture
account debit to premium on redemption
of debentures with what
amount of premium on Redemption this
loss on issue of debentures account
which is deleted is a capital loss
account and it is normally normally
written off over the life of the
debentures the premium on redemption of
debentures account however is a personal
account it is a personal account
representing the account of the
debenture holder to whom the premium is
payable so premium on redemption of
debentures is a personal account and
it's shown and on the liability side of
the balance sheet other non current
liabilities loss on the other hand is a
capital loss it is shown as other non
current assets and it is written off
over the life of the debentures now let
us quickly look at the entries when the
benches are issued at par redeemable at
par the entries on issue is bank account
debit let's say 100 to debentures
hundred what happens at the point time
of redemption the event should account
debit to debenture holders debenture
holders to bank the entire amount of
hundred so it is simple bank account
debit debenture account is credited
because it is unknown it is a liability
it appears under long term borrowings it
is usually a secured loan if the
ventures are issued at a at par but they
are redeemable at a discount this
discount cannot be accounted for at the
time of issue because the discount on
redemption is a profit this is a profit
and we will account for this profit only
when it is actually realized so the
entry here on
issue is bank account debit to
debentures 100 but when it comes to
actually redeeming the debentures we say
dimensions account debit 102 bank we pay
only 95 and to discount this five five
rupees is the profit which can be
transferred Oh profit and loss account
let us now consider a case where the
debentures are issued at par but they
are redeemable at premium since it is
issued at par the entry is bank account
debit 102 debenture account 100 so bank
account to debenture in addition we
provide for the loss on redemption and
therefore it is called loss on issue of
debentures account debit loss or
sometimes they call this discount also
top loss or discount on issue of
debentures debit among being by to
premium on redemption of debentures file
loss of issue of debentures loss on
issue of debentures premium on
redemption of the ventures like I said
the loss on issue of Devonshire's 5 is
nothing but the loss which will arise at
the time of redemption it is being
provided for now it is a written off
over the life of the debentures and it
appears under other non current assets
in the balance sheet the premium on
redemption of debentures on the other
hand is the amount which is due to the
differential holder it is a liability
and shown under other non current
liabilities what happens at the time of
redemption at the time of redemption the
venture account is debited with the face
value hundred the premium on Redemption
account is debited with file and
therefore this account gets closed it
gets canceled and to bank 105 this is
how the premium and redemption of the
ventures account gets closed the loss of
redemption of the loss of issue of
aventures the loss on each ship
debentures is a written off or charged
to the profits over the life of the
debentures what happens if the
debentures are issued at a discount
the entry for issue of the venture at a
discount is nothing but bank account
debit discount account debit to
dimension and this discount is our loss
discount is a capital loss in fact it is
treated in the same way as the loss on
issue of a venture circle so normally
the discount we should aventures and the
loss on issue of aventures are treated
in a similar manner together and only
one account is opened
if the ventures are issued at a discount
of 95 redeemed at par the entry on issue
is bank account debit we get only 95
discount on issue of the ventures is
five and two dimensions is credited with
face value and when they are repaid the
venture account debit is hundred with
the face value two debenture holders and
debenture holders to 500 so entry on
issue is just entry on issue at discount
is like an entry on issue for invitation
now again now we have another case where
it is issued at discount and this is a
redeemed also at a discount the previous
case was 5 what happens now now again
the money which comes in is 95 discount
on discount or loss on issue
benchers is five to debentures is 100
this is because this 10 rupees discount
will which will arise at the time of
redemption is a profit it will arise it
will be realized only when the
debentures are redeemed following the
conservatism concept we will not we will
not consider future profit we will not
take that into account we will ignore it
till it is actually realized and repeat
in practice the debentures are rarely
redeemed at a discount on Redemption the
entry would be bank account debit a
sodding aventure account debit with the
face value to bank we would pay only 95
and therefore have a profit of 5 which
is discount on redemption of debentures
and which can be transferred to the
profit and loss account what happens if
the debentures are issued at a discount
but redeemed at a premium if they are
redeemed at a premium this is called a
loss on issue of dimensions like we said
before whenever
debentures are redeemable at a premium
since it is a loss which will arise in
the future
we make a provision for it now we a bit
loss on issue of debentures account
debit to premium on redemption along
with the along with the normal issue
entry what is the normal issue entry
bank account debit 95 discount on issue
debit file to debentures to debentures
would be hundred however there is a
premium on redemption of 5 which is a
loss and this and therefore we would
pass another additional entry loss on
issue of debentures our content file to
premium under dimension file so premium
on redemption file and this cup of loss
one and same account the accounting
treatment is the same therefore this
becomes five plus five take discount or
loss or issue of Adventures only one
account is Bookman and this in this case
consists of both the loss the discount
on issue as well as the premium on
redemption premium on redemption is a
loss capital loss discount on issue is
also a capital loss both are clubbed
together under one account called
discount of loss on issue of the
ventures account these may then be
written off over the life of the
debentures or actual Redemption
debenture account would be 100 premium
on redemption of debentures would be
debited for five and we would pay the
debenture holders 105 therefore in this
way again the premium on redemption of
debentures account gets closed at the
time of redemption let us consider when
the benches are issued at the plane in
the first case the debentures are issued
at a premium
they are redeemed at five again in the
second instance issued at a premium
but redeemed at a discount and in the
third case this is redeemed as a plane
we past normal issue entry and only if
there is a premium on Redemption which
is a loss we make provision for it at
the time of issue itself so let us look
at the entries what is our entry when
debentures are issued at a premium
redeem that part normal issue entry bank
account debit the amount that comes in
is 110 to debentures debentures are
always credited with the face value
hundred to security premium
then the security premium is the same
account that we have during the issue of
equity shares security free when the
debentures are ready debenture account
would be debited with the face value to
debenture holders debenture holders to
bank would be friendly if debentures are
issued at a premium and they are
redeemable at a discount this discount
on the redemption is a profit 100 repeat
the venture for a hundred to individual
the company will be paying only who is
95 since it is a profit it will not be
accounted for at the time of issue it
will be brought into the books only when
it is actually realized that is at the
time of redemption of debentures
therefore an entry for issue is a normal
issue entry bank account debit the money
comes in is hundred and then to
debentures with the face value 102
securities premium it is a step when the
debentures are redeemed
however debentures is debited with the
face value 100 it's cancelled to bank we
pay only 95 and the difference 5 is the
profit the discount on redemption of
debentures which may be taken no profit
and loss account next let us consider
where the debentures are issued at a
premium that is a profit this is a
premium this is a premium in every case
Security's premium is nothing but
capital profit so in this case also what
we have is a capital profit here and a
capital loss so let us consider the
normal entry for issue like we have done
before is bank account debit 110 to
debentures it is 102 securities premium
distant in addition now for this laws of
15 you have to pass an entry discount or
loss on issue of debentures account
debit with 15 to premium on redemption
of debentures 15 it may be noted since
this discount or loss on issue of
debentures account this is an item of
capital loss and the securities premium
is an item of capital profit we may set
off one against the other
usually therefore in such a case another
entry is passed debit a security premium
account debit 10 to loss on issue of
aventures that is setting off the
capital loss against the capital profit
which arises in that same transaction
what happens at the time of redemption
debentures are debited with the face
value hundred but the amount that we pay
is 115 the difference of 15 is the
premium on Redemption depth with this
the premium account gets closed so what
is the entry here bank account debit 110
with the total amount received discount
or loss on issue of debentures account
with the premium of redemption to
debentures with the face value to
securities premium with the premium on
issue to premium on redemption of
debentures again credited with the
premium payable on Redemption
since security premium is a capital
profit and loss on issue of debentures
is a capital loss it is set off against
another so normally a
entry is fast very whereby securities
premium is debited and the loss on eShop
debentures credited with a lower amount
thus in conclusion we may say that the
accounting entries on issue of aventures
are similar to the accounting entries
for issue of shakes that is bank account
debit when the amount received to
debentures if they are issued at par
bank account debit with the amount
received to debentures with face value
to security premium with the amount of
premium on issue or bank account debit
with the amount received say 95
discounting issue of the ventures
account debit 5 to debentures 100 with
the face value in case the Dementors are
issued at a discount these would be the
entries if the debentures are redeemable
at par and if the Dementors are
redeemable at a discount the only
variation comes when the ventures are
redeemable at a premium in that case in
addition to these normal issues and in
addition to this normal entries we pass
an extra entry which is lost on issue of
debentures account debit to premium on
redemption of aventures loss is a
capital loss account shown a less excite
of the balance sheet under other non
current assets premium on redemption of
debentures account is a personal account
representing the liability to the
debenture holder and it appears on the
liability side usually under other non
current liabilities