Company mentions the terms of redemption of Debentures, at the time issue. Redemption of debentures (Discharge of liability on account of debentures, by repayment of principal amount to the debenture holders) can be done at par or at premium.

Terms of Issue and Redemption of Debentures

Debentures can be redeemed either at par or at a premium. So, depending upon the terms and conditions of issue and redemption of debentures, the following six situations arise:

1. Issued at par and redeemable at par.

2. Issued at discount and redeemable at par.

3. Issued at a premium and redeemable at par.

4. Issued at par and redeemable at a premium.

5. Issued at a discount and redeemable at a premium.

6. Issued at a premium and redeemable at a premium.

 

The journal entries to be recorded for the above six cases of issue of Debentures are as follows.

1. Issued at par and redeemable at par.

No. Transaction Journal Entry Amount
1. When Application Money is received. Bank A/c                       Dr.

To Debenture App. & Allot. A/c

 Actual Application Money received.
2. On Allotment of Debentures. Debenture App. & Allot. A/c    Dr.

To Debentures A/c

 The amount transferred to

Debentures Account.

2. Issued at discount and redeemable at par.

No. Transaction Journal Entry Amount
1. When Application Money is received. Bank A/c                      Dr.

To Debenture App. & Allot. A/c

 Actual Net Application Money received.
2. On Allotment of Debentures. Debenture App. & Allot. A/c   Dr.

Disc. on Issue of Debs. A/c    Dr.

To Debentures A/c

 Net Appl. Money received.

Discount on Issue .

Face Value of Debs.

3. Issued at a premium and redeemable at par.

No. Transaction Journal Entry Amount
1. When Application Money is received. Bank A/c                       Dr.

To Debenture App. & Allot. A/c

 Actual Total Application

Money received including Securities Premium.
2. On Allotment of Debentures. Debenture App. & Allot. A/c   Dr.

To Debentures A/c

To Securities Premium A/c

 Actual Total Application Money received.

Face Value of Debs.

Securities Premium.

4. Issued at par and redeemable at a premium.

No. Transaction Journal Entry Amount
1. When Application Money is received. Bank A/c                     Dr.

To Debenture App. & Allot. A/c

 Application Money received.
2. On Allotment of Debentures. Debenture App. & Allot. A/c  Dr.

Loss on Issue of Debs. A/c    Dr.

To Debentures A/c

To Prem.on Red.of Debs. A/c

 Application Money received.

Premium on Redemption.

Face Value of Debs.

Premium on redemption.

5. Issued at a discount and redeemable at a premium.

No. Transaction Journal Entry Amount
1. When Application Money is received. Bank A/c                      Dr.

To Debenture App. & Allot. A/c

 Net App. Money received.
2. On Allotment of Debentures. Debenture App. & Allot. A/c   Dr.

Loss on Issue of Debs. A/c    Dr.

To Debentures A/c

To Prem. on Red.of Debs. A/c

 Appl. Money received.

Discount plus Premium.

Face Value of Debentures.

Prem.on Redemp.of Debs.

6. Issued at a premium and redeemable at a premium.

No. Transaction Journal Entry Amount
1. When Application Money is received. Bank A/c                      Dr.

To Debenture App. & Allot. A/c

 Net App. Money received.
2. On Allotment of Debentures. Debenture App. & Allot. A/c    Dr.

Loss on Issue of Debs. A/c      Dr.

To Debentures A/c

To Securities Premium A/c

To Prem. on Red. of Debs. A/c

 Appl. Money received.

Discount plus Premium.

Face Value of Debentures.

Securities Premium.

Premium on Redemption.

Debentures Issued as Collateral Security