Accounting for Debentures Test - 2

Debenture Application Account is a personal account. It is Representative Personal Account.

Debenture Allotment Account is a personal account. It is a Representative Personal Account.

Premium on Redemption of Debentures Account is a personal account. It is shown in the balance sheet (as premium due i.e. liability). Premium payable on redemption is treated as a loss and should be written off against the Statement of P/L.

Debenture holders are the creditors of a company because they are paid first at the time liquidation. Their payment (Principal amount and interest) is fixed, which has to be paid either firm is in profit or loss.

Discount on issue of debentures is treated as a fictitious asset and should be written off against the Statement of Profit and Loss. As it shows Debit Balance.

Securities Premium received is a capital profit for a firm which is shown in the balance sheet under the heading 

Debentures issued are shown under the heading of Non-current liabilities and sub-heading Long Term Borrowings.

Shareholders get dividend but debenture holders get Interest. Dividend is paid only when there is some profit in the business but interest on debentures is paid irrespective of losses.

A Debenture is acknowledgment of debt and a contract for the repayment of principal amount with interest. Interest paid on debentures is a fixed charge and will be paid whether firm is in profit or loss.

A debenture is a document issued by a company as evidence of a debt to the holder usually arising out of a loan and most commonly secured by a charge. A company issue its debentures under the Common Seal of the company.