Class 12 Accountancy - ANDHRA-PRADESH
Issue and Redemption of Debentures
The chapter 'Issue and Redemption of Debentures' in Class 12 Accountancy is a crucial part of company accounts governed by the Andhra Pradesh (BSEAP) curriculum. It covers the methods by which a company raises long-term borrowed capital through debentures and the various ways these debentures are paid back or redeemed. Students learn journal entries for issuing debentures at par, premium, and discount, as well as issue as collateral security and writing off discount/loss on issue. Understanding redemption terms and creating Debenture Redemption Reserve (DRR) as per RBI and Companies Act guidelines is vital for scoring high marks in board exams.
Start Learning FreeKey Concepts
Debenture
A written instrument acknowledging a debt issued by a company under its common seal, containing a contract for the repayment of principal at a specified date and payment of interest at a fixed rate.
Issue of Debentures for Consideration Other than Cash
When a company purchases assets or an entire business and issues debentures to the vendor instead of paying cash, recorded at the agreed purchase consideration.
Collateral Security
Debentures issued as an additional or secondary security to a lender for a principal loan, alongside the primary security.
Writing off Discount/Loss on Issue of Debentures
The capital loss suffered on issuing debentures at a discount or redeeming them at a premium must be written off against Capital Reserve, Securities Premium, or Statement of Profit and Loss within the useful life of the debentures.
Debenture Redemption Reserve (DRR)
A mandatory reserve fund created by companies out of their profits available for dividend before the redemption of debentures begins, ensuring adequate liquidity.
Important Formulas
Board Exam Info
In the Andhra Pradesh (BSEAP) Class 12 Accountancy board exam, this chapter typically carries around 8 to 12 marks. Questions usually include a mix of short-answer questions (2-4 marks) testing journal entries for issue terms, and a major 6 or 8-mark numerical problem combining issue of debentures with terms of redemption and creation of DRR.
Frequently Asked Questions
Is writing journal entries for the issue of debentures similar to the issue of shares?
Yes, the journal entries are very similar. The only difference is that instead of 'Share Capital', we use 'Percentage Debentures' account (e.g., 9% Debentures), and we use terms like 'Loss on Issue of Debentures' when issued at a discount or redeemable at a premium.
What is the difference between issuing debentures as collateral security and issuing them for cash?
When issued for cash, actual funds flow into the company. When issued as collateral security, no immediate cash flows; debentures are simply pledged as secondary security for a bank loan, which can be recorded with a journal entry debiting 'Debentures Suspense A/c'.
Is DRR compulsory for all companies in India under BSEAP guidelines?
No, as per recent amendments by the Ministry of Corporate Affairs, All India Financial Institutions (AIFIs), banking companies, NBFCs registered with RBI, and housing finance companies are exempt from creating DRR for privately placed debentures.
Learn Issue and Redemption of Debentures with Your AI Tutor
10 different ways to study this chapter. Free for 3 chapters per day.
Lecture
Key Points
Interactive
Quiz
Flashcards