Class 12 Accountancy - BIHAR
Issue and Redemption of Debentures
The chapter 'Issue and Redemption of Debentures' in Class 12 Accountancy under the Bihar School Examination Board (BSEB) syllabus covers how companies raise long-term borrowed capital through debentures and the various methods of paying them back. Students will learn journal entries for issuing debentures at par, premium, and discount, as well as issuing them as collateral security and with terms of redemption. The chapter also explores writing off discount/loss on issue of debentures and methods of redemption like lump sum and sinking fund. This is a high-scoring and critical chapter frequently featured in long-answer board questions.
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 a running business and issues debentures to the vendor instead of paying cash, recorded by debiting assets and crediting the vendor.
Collateral Security
Debentures issued as a secondary or additional security to a lender against a loan, where journal entries can either be passed using the 'Debenture Suspense Account' or omitted from primary books.
Terms of Redemption of Debentures
When debentures are issued at par, premium, or discount with an agreement to redeem them at a premium, the future loss on redemption must be accounted for immediately at the time of issue.
Redemption of Debentures
The discharge of liability on account of debentures by repaying the principal amount to the debenture holders according to the terms of the issue.
Important Formulas
Board Exam Info
In the Bihar Board (BSEB) Class 12 Accountancy exam, this chapter typically carries around 8 to 12 marks. Questions usually include 1 or 2 objective/multiple-choice questions, a short-answer question (2-3 marks), and a major 5 or 6-mark numerical problem focusing on the issue of debentures with terms of redemption or writing off discount/loss on issue.
Frequently Asked Questions
What is the difference between Shares and Debentures?
Shares represent ownership capital and shareholders are owners of the company who get dividends. Debentures represent loan capital and debenture holders are creditors who get a fixed rate of interest.
Is Debenture Redemption Reserve (DRR) mandatory for all companies?
No, as per recent guidelines, DRR is not required for All India Financial Institutions (AIFIs) regulated by RBI, banking companies, and for non-banking financial companies (NBFCs) registered with RBI, or housing finance companies. For others, 10% DRR is required.
How do we treat Loss on Issue of Debentures in the balance sheet?
Loss on Issue of Debentures is treated as a capital loss. The portion to be written off within 12 months is shown under 'Other Current Assets' and the rest under 'Other Non-Current Assets' until fully written off against Securities Premium Reserve or Statement of Profit and Loss.
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