Accounting for Debentures Test - 13

Discount allowed by company at the time of issue debentures is treated as capital loss and should be written off against the Statement of Profit and loss or against the Securities premium reserve.

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.

In a company only those people are shareholder can vote but debenture holders are not allowed to vote. The simple reason is debenture holders are treated as outsiders and shareholders are treated as insiders.

A company can issue its Debentures at par, premium and discount. But shares cannot be issued at discount.

Debentures are safe in comparison of shares. Debentures are almost risk free because most of the time they are secured by a charge on the assets of the company.

When debentures become due for the redemption they are shown under the heading of Current Liabilities and sub heading Other Current Liabilities.

When a company receives more applications for the debentures than the actual debentures offered for the subscription, it is known as over subscription.

Sometimes a company issue its debentures as a subsidiary or secondary security. Such issue is known as issue of debentures a collateral security.

Securities premium account is to be credited with Rs.9,500 i.e. Applications received 950 x 10 Rate of premium = 9,500

Rs.55,000 is to be refunded to the applicants i.e. 500 Excess applications x 110 = 55,000.