Class 12 Accountancy - HARYANA
Issue and Redemption of Debentures
The chapter 'Issue and Redemption of Debentures' in Class 12 Accountancy is a crucial part of company accounts. It covers how a company raises long-term debt through debentures, accounts for their issue at par, premium, or discount, and handles collateral security and writing off discount on issue. Additionally, it explains the methods of repayment or redemption of debentures such as lump sum, draw of lots, purchase in the open market, and conversion. Mastering this chapter is essential for Haryana (BSEH) board exams as it frequently features high-weightage numerical problems and journal entry 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 as Collateral Security
When a company issues its own debentures as secondary security to a lender against a primary loan, no separate entry is passed unless the lender exercises their right, but disclosure is made in the balance sheet.
Writing off Loss on Issue of Debentures
Discount or loss on the issue of debentures is a capital loss that must be written off as early as possible, first from Securities Premium Reserve (if available) and then from the Statement of Profit and Loss.
Redemption of Debentures
The discharge of liability by repayment of the loan amount to the debenture holders according to the terms and conditions of the issue.
Debenture Redemption Reserve (DRR)
An amount set aside from profits by certain companies before the redemption of debentures begins, ensuring adequate funds are available to protect investors' interests.
Important Formulas
Board Exam Info
In the Haryana (BSEH) Class 12 Accountancy board exam, this chapter typically carries around 8 to 12 marks. Students can expect a mix of multiple-choice questions, short-answer theoretical questions, and a mandatory 6-mark or 8-mark comprehensive numerical question involving journal entries for both the issue and redemption of debentures.
Frequently Asked Questions
Is Debenture Redemption Reserve (DRR) mandatory for all companies?
No, as per recent guidelines, All India Financial Institutions regulated by RBI, Banking companies, NBFCs registered with RBI, and Housing Finance Companies (HFCs) are exempt from creating DRR for both public and privately placed debentures.
What is the difference between passing entries for debentures issued as collateral security?
You can either pass no entry and show a note in the Balance Sheet, or pass the entry: Debenture Suspense A/c Dr. To % Debentures A/c, which is the preferred method in school board exams.
When should Debenture Redemption Investment (DRI) be made?
As per rules, companies must deposit or invest at least 15% of the face value of debentures maturing during the financial year in specified securities on or before the 30th day of April preceding the redemption year.
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