Class 12 Accountancy - CBSE
Issue and Redemption of Debentures
The chapter 'Issue and Redemption of Debentures' in Class 12 Accountancy covers the accounting treatment for raising long-term borrowed capital through debentures and paying it back. Students learn journal entries for issuing debentures at par, premium, and discount, as well as issue for considerations other than cash and as collateral security. A major focus is placed on the terms of redemption regarding writing off loss on issue and creating debenture redemption reserve (DRR) and investment as per regulatory norms. This is a high-scoring, practical chapter that frequently features comprehensive 6-mark numerical problems in the CBSE board exam.
Start Learning FreeKey Concepts
Debenture as Collateral Security
Issuing debentures as a secondary security for a loan taken from a bank, where entries can be recorded using the 'Debenture Suspense Account' method or without it.
Issue of Debentures at Discount and Premium
Debentures can be issued below their face value (discount, which is a capital loss) or above their face value (premium, which is a capital gain).
Terms of Redemption and Writing Off Loss
Accounting for future losses on redemption when debentures are to be redeemed at a premium, creating a 'Loss on Issue of Debentures' account at the time of issue itself.
Debenture Redemption Reserve (DRR)
A mandatory reserve created out of divisible profits before the redemption of debentures begins, ensuring companies maintain adequate liquidity to pay back investors.
Interest on Debentures
A charge against profits that a company must pay periodically to debenture holders, requiring entries for due, payment, and tax deduction at source (TDS).
Important Formulas
Board Exam Info
In the CBSE Class 12 Accountancy paper, this chapter typically carries around 6 to 8 marks. It usually features a compulsory 6-mark long-answer question combining the issue of debentures with terms of redemption, alongside 1-mark objective questions.
Frequently Asked Questions
Is Debenture Redemption Reserve (DRR) required for all companies?
No, as per recent MCA notifications, All India Financial Institutions (AIFIs), Banking companies, NBFCs registered with RBI, and listed companies (other than All India Financial Institutions and Banking companies) are not required to create a DRR. It is primarily required for unlisted Non-Banking Financial Companies, Housing Finance Companies, and other unlisted companies.
What is the difference between issuing debentures as collateral security and issuing them directly?
Direct issue involves raising funds directly from the public or financial institutions by issuing debentures. Collateral security means issuing debentures as a secondary, backup guarantee for a primary loan taken from a bank, recorded via the Debenture Suspense Account.
When should Debenture Redemption Investment (DRI) be deposited?
A company must invest or deposit at least 15% of the face value of its debentures maturing during the year ending on March 31st, on or before the 30th day of April preceding that year.
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