Class 12 Accountancy - GUJARAT
Issue and Redemption of Debentures
The chapter 'Issue and Redemption of Debentures' in Class 12 Accountancy under the Gujarat Secondary and Higher Secondary Education Board (GSEB) focuses on understanding long-term debt instruments used by companies to raise capital. Students learn how debentures are issued at par, premium, or discount, and the accounting treatments for these issues, including terms of redemption. Furthermore, the chapter covers various methods of redeeming debentures, such as out of capital, out of profits, by creation of Debenture Redemption Reserve (DRR), and purchase in the open market. Mastering these journal entries is crucial for scoring high in board exams.
Start Learning FreeKey Concepts
Debenture
A written acknowledgment of debt issued by a company under its common seal, acknowledging receipt of money and promising to repay it with interest.
Issue of Debentures at Discount, Par, and Premium
Debentures can be issued at face value (par), less than face value (discount), or more than face value (premium), each requiring specific journal entries.
Issue of Debentures with Terms of Redemption
Accounting treatment for losses arising on the issue of debentures when they are redeemable at a premium, following the principle of conservatism.
Debenture Redemption Reserve (DRR)
A mandatory reserve fund that certain companies must create out of their profits before redeeming debentures to protect the interests of debenture holders.
Redemption of Debentures
The repayment of the principal amount of debentures by the company to the debenture holders through various methods like lump sum, draw of lots, or open market purchase.
Important Formulas
Board Exam Info
In the Gujarat (GSEB) Class 12 Accountancy board exam, this chapter typically carries around 8 to 10 marks. Questions usually include a mix of objective questions (MCQs), short calculation-based problems, and a major 6-mark practical question involving comprehensive journal entries for both the issue and redemption of debentures.
Frequently Asked Questions
Is DRR mandatory for all companies issuing debentures?
No, Banking companies, All India Financial Institutions (AIFIs), and Non-Banking Financial Companies (NBFCs) registered with RBI are exempt from creating a DRR.
What is the difference between a share and a debenture?
A share represents ownership in the company and holders get dividends, whereas a debenture represents a loan given to the company and holders receive fixed interest.
What is the journal entry when debentures are issued at a discount and redeemable at a premium?
Bank A/c Dr., Loss on Issue of Debentures A/c Dr. To Debenture Application & Allotment A/c, To Premium on Redemption of Debentures A/c.
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